Market Watch June 2011

Close to the end of QE2 here is an interesting interview with Faber the famous publisher of the Gloom, Boom & Doom report.

Watch  Faber on Inflation and China Bloomberg

The message here is a complete lack of trust on inflation data both in US and in China …

In the Indian context the Issues are the same.

RBI is not serious about inflation control so long as Interest rates in the western world and EU are negative or close to zero.

It has purchased $ 31 billion in the last yr, that’s about 1.3 lakh crores, which accounts for most of the increase in currency from 8.25 lakh cr. to 9.61 lakh crore in the last one year.  Since April 1, 2011, bought over $4.5 billion. Thats Rs 35 billion. (figures from

This is the other method of printing money and increasing money supply, mainly to support governments decision to protect exports and dissuade imports by keeping the unofficial Rupee peg at 44/45.

Thus as the debt manager of govt it wants real interest rates below real inflation rates thus punishing savers and creating asset price bubbles

The yield curve has inverted … It is a sign of impending recession.

We are in the midst of a serious asset price bubble where real estate prices have more than doubled.

The prices of vadapao and milk have tripled.

We are also in a classic wage price spiral as wages are chasing prices and vice versa.

MG NREGA is inflation adjusted and will add to  increase in inflation

There is a 9 to 14% increase in minimum support prices will add to inflation.

My conclusion … expect more inflation as govt attempts to keep its vote banks happy , and these attempts will be more desperate as time passes and govts laissez faire inactive policy making will alienate more Indians in future.

Markets are expected to be choppy and probably correct as more negative news comes out.


8 thoughts on “Market Watch June 2011

  1. nice post with a lot of brief to the point pointers.
    1. Indian inflation numbers have been understated for decades now… i think the only economic sense it makes is calculating the DA for the public servants

  2. i don’t care about inflation due to NREGA… if the prices are increasing because the poor can afford 2 square meals… then the rich deserve to pay the extra.

    1. Therein lies the paradox, and congress takes advantage of i dont care justification….purely for votes
      while the people most enriched is its rural functionaries n bureaucracy
      if u want to feed the poor u have to improve the pds system to a stamp like in us or cash based one. Get the fsa for very poor …but dont distort with 4rs pds kerosene when mkt is at 45 and 50% of it gets diverted ….that is a cost to taxpayer

      The rich never pay and tell me in which country have they paid ? the only payment they make is on the currency front , ..take Greece , the rich shelter their funds in tax havens, the middle and lower middle class gets a pay cut, same is the case in the usa…where bush tax cuts have spared them pain

      have u seen the video link ???? it holds good for india…
      go to the taj or sheraton in mumbai and see the cars that people have…

      1. i don’t think mahatma Gandhi would approve of the NREGA
      because it is a temporary vote gaining policy that is mired in corruption …
      it is taking the easy way out … essentially Sonia is following the populist Indira Gandhi policy first the loan maafi scheme then nrega and mind u this will eventually lead to recession and another emergency when the boat wobbles especially when global headwinds are bad.

      2.Is a person earning 20 or below daily poor and the person earning 21 and above not poor?
      it does not give the poor any long term employment nor does it build long term infrastructure
      nor does it make unskilled labor get skill… dont teach a man to fish…. no give him fish … it helps with votes.

      3. To pull the below Rs 20 earner up above the 20 level have u thought about how many in lower middle class and working class who earn hand to mouth join the ranks
      of the poor?

      4. does this not distort labor market, the prices and generate more unemployment over longer term due to mechanization ? this has already started

      5. Due to the non oil adjusted high inflation already investment has taken a hit …so is demand…
      Middle class esp lower mc has no savings and no Social security in urban areas. Worse hit are retirees who have survived indira tax regime.

  3. mahatma gandi was no economist… to give you a simple example..
    he balmed railways/transport/logistics for all the poverty in the nation.
    2. he would actually love this scheme… for him the best thing that could happen to this country would be that everybody started spinning wheels and indulged in handicrafts.. without any understanding that there cannot be any wealth generated by this scheme.

  4. i agree that the scheme is not perfect… but atleast it does something to create wealth/employment/opportunities in the rural india.. the part of the country left behind when india is/was shining.

    neways we can argue endlessly… i wanted to inquire if your personal problems are resolved. let me know if i can help.. i can atleast lend an ear.

  5. ok he was no economist but come on he believed in self sufficiency however stupid u might think the concept is or more so his form of implementation would be…

    it is a pathetic populist scheme which has been massively implemented without looking at the flaws in govt delivery mechanism… this is history repeating itself …
    it will make many in urban india poor …

  6. i agree with the flaws in implementation.

    somehow i always believe that there is a lot of seasonal migration between the urban and rural poor… remember how difficult it is to get a handyman during the harvest season. so that would keep the poor in check. i believe this scheme is a form of min wage guarentee thingy

  7. yes i agree it is a sort of like thing that makes everyone happy, seasonal migration is there , wages have gone up because people get money for doing nothing … but what they get will rapidly loose value
    Reminds me of sakhi saiyan to khoobhi kamat hai, mehngayi dayan khaye jaat hai

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