Sunday, August 28, 2016

Weekend Links + Cartoon of the Week

I will start a weekly blog, on interesting links and markets related stuff ... every weekend - stuff that I trawl the internet (many blogs and twitter) ... and collate it here.

Hopefully you find this fun. All the information here should be publicly available (I will refrain from putting in proprietary research from my firm, or sell side analysts)

Feedback, Comments and Criticism all is welcome.

Jackson Hole speech by Yellen saw a lot of coverage (which you might have already read) but my colleague in NY has put up the Central Bank tea leaves ... 
-Fed Chair Janet Yellen - rate hike odds have 'strengthened' {}
-Fed Vice Chair Stanley Fischer - Number of hikes this year depends on the data {}
-Kansas City Pres Esther George (a voter) - "Time to move rates higher gradually" {}
-St Louis Fed James Bullard (a voter) - September might be "a good time" to raise interest rates {}
-Dallas Fed Robert Kaplan (a non-voter) - case for increasing rates "building"  {}
while a picture attached (always better than a 1000 words) - says it all ... about a 40% chance of a hike in September.
Inline image 4

While a lot more ink has been spilt on the event, I doubt anything resulted which was as good (this cartoon is my best ever ... ) 
 Inline image 1

Moving on from the Fed ... these are the few interesting links I found this weekend 
1. How much control does China really have? 
Its a bit controversial topic, but the author points out that the Local Governments arent following the orders on capacity reduction (unlike how they did in the upcycle of capacity addition) - Definitely worth a read for all China watchers 

2. Should the Glass-Steagall act be reinstated? 
While both the Presidential Nominees have been railing against Wall Street, and proposing to clamp down profits by regulation, Alex Tabarrok of GMU (and Marginal Revolution blog) looks at it.  

3. 2 links on the distortions by Central Banks 
ECB buys bonds via private placement 
US stocks bouyed via SNB buying 

4. Canary in the Coal Mine for China's offshore currency 
The recent stability in the Renminbi is unlikely to last, looking at the falling offshore renminbi (CNH) deposits, which signals renewed currency turbulence in the future

5. Upcoming Pension Crisis in Europe 
surprisingly Poland has the largest unfunded pension liability to GDP ratio

In case you are thinking I am all doom and gloom ... 

6. Singapore has experimented with the first driverless taxi
I have already registered on for a test ride. Have you? 

Bonus Link
A new earth like planet found in another solar system ... 
I guess will be before our lifetimes where humans will have to colonize another planet 

Sunday, August 21, 2016

My thoughts on the new RBI governor Dr. Urjit Patel

Note: These are my personal thoughts on the incoming RBI Governor, and in no way do they reflect the official view by my employer. Do not treat this as an investment recommendation, and anyone reading this blog should do their own investment research. 

You all might have noticed that the Reserve Bank of India ("RBI") has appointed Dr. Urjit Patel as the next RBI governor, after the term of the current Governor (Dr. Raghuram Rajan "RRR") expires on September 4th, 2016.

While there has been a lot of ink split on the new appointee, (see this excellent profile about him -> and given he is a sitting Deputy Governor (one out of four who hold that post) this spells continuity.
This picture says it all

On the policy front, he is expected to be on the hawkish side, given it was his own recommendations that suggested RBI formally target inflation, with a target of 4% +/- 2% and maintain a real rate of of 1.5% over the CPI (which rules out immediate rate cuts) given the last inflation print was 5.7%.

Another important distinction I would like to draw about Urjit Patel which probably is unique compared to the others in running for the post, or previous RBI Governors.
While he has impeccable academic credentials (M.Phil from Oxford, PhD from Yale)

He is neither a career academic (like predecessor Raghuram Rajan, or Arvind Subramanian and Arvind Panagariya) ...
Nor is he a career bureaucrat rising the rungs either through RBI, or civil services. (like DV Subbarao, or other current Deputy Governors R. Gandhi, H.R. Khan, and Shaktikanta Das who was in the fray)
Also he isnt a career banker (like SBI Chairperson Arundhati Bhattacharya, HDFC bank Chairman Deepak Parekh, ex ICICI Chairman K.V. Kamath)

Given his wide variety of experience, both in government and private sector (at IMF, advisor to Boston Consulting Group, on board of Reliance Industries and non executive director in Gujarat State Petroleum Limited) he should be more industry oriented, than a pure academic.

Typically (my speculation, and non scientific observation) - Academics hold on to their ideas, and do not work easily with the Government (remember the not to subtle differences of opinion between Raghuram Rajan and the Finance Minister Jaitley), while career bureaucrats probably bend too easily to the wills of the government. (And probably are more sympathetic to the previous ruling party - which was in power for most of their career)

At this juncture, Indian policy making is in a state of flux. There are new taxes (GST) replacing the old, new Bankruptcy Code has been passed by legislature, while corporates are crippled with high level of debt, and banks saddled with the NPAs. More over RBI itself will have a new structure.

Hence rather than a specialist in a single domain, you need some type of an all rounder. (Or as Nate Silver from says - Hedge Hog and not a Fox)
Also - with the new RBI structure (6 member committee on Monetary Policy, consisting of one Governor, 2 Deputy Governors and 3 appointees from the Government), the RBI Governor has a lesser power than before, a person from private sector, and a relative outsider would be better suited to getting consensus in the committee.

Another thing - Urjit Patel has been media shy, and unlike RRR, would not be speaking to media on areas outside his domain (policy making, religious intolerance ...) which is the reason why the Hard Right Wing of the BJP turned against RRR.

Another bit of insight is, Urjit Patel was born in Kenya, and has lived majority of his life in the West, (which might bring barbs from the Hard Right wing of the ruling party about being an outsider) and only took up Indian citizenship when he was appointed as a Deputy Governor in Jan 2013.
Though this speculation has been shot down for the moment, as the extreme right has endorsed him (for now)

Also - while being foreign born, he is a native Gujarati speaker, same as the Prime Minister (Narendra Modi) and BJP party president Amit Shah, and rumored to be close to Amit Shah. Thus despite being hawkish on monetary policy he might be able to better communicate his views to the PM, who (its well known) isnt as articulate in English. (Was this a reason he got the job?)

The Government has appointed a Governor, now the speculation moves to who the 3 government nominees would be, (if rumours are to be believed - some of the names mentioned above, and a couple of Sell Side Investment Bank Economists are in the fray)

Anyways - I wish the new RBI Governor good luck, and hopefully he steers the Indian Economy well.
As for the previous governor, I am a big fan of his writing, (read both of his books) and looking forward to his next one. 

Books by Raghuram Rajan
Saving Capitalism from Capitalists 
Fault Lines

Books by DV Subbarao
Who Moved My Interest Rate

Disclaimer - I am a mere observer of the Indian Financial Market, and by no means an expert. Any thoughts, counter arguments and brickbats are welcome.