my notes on US Tariff saga

 if there is no trade barrier, efficient countries/businesses will eat the inefficient

--

but that is ok if every country has a niche

--

but those who don't have a niche, they'll perish

--

if tariffs are similarly high for all, the one with the trade deficit will be at loss

--

and if they opt for not importing, the global quality of life will be seriously hit

--

and then, the rich countries will predate the poor. because military power = economic power. poor won't be able to defend themselves

--

US trying to force enter the inefficient beyond its already high trade surplus.

--

those without efficiency niche will get destroyed, those with efficiency will get partially saved.

--

US will become uncompetitive in the world where it is depending on raw material imports. unless it removes duty on those things

--

US has destabilized/kicked a highly sensitive and complex domino system

--

it is an act of global sabotage

--

it is a mind-numbing gamble on global scale

--

US should have exempted non self-reliant raw material imports

--

because of retaliatory counter tariffs, US is shutting the global market gates on itself where other competitors are there without those tariffs

--

only local nationalistic boycotts can help, temporarily, and to some extent...once the disadvantaged coerced countries lift tariffs for US. afterall, even US exporters wont be giving you anything without you actually paying for it.

--

you don't need to protect your strengths.

--

US is just trying, in futility, to protect its weaknesses while gambling to get into inefficient bazars for incremental export addition.

--

China did all that, but dramatically increasing productivity and innovation, and long-term strategy, not in this crude fashion. this act of US only shows that US has run out of ideas, or is hiding some other underlying mega-crisis

--

US is betting on countering impending inflation with increased revenue from exports. but inflation marred people are not the same as export incentive beneficiaries. this will lead to unrest in the masses soon.

--

US policy is inclined towards corporates, but they too may be hit by avalanche of side-effects 

--

this act has been done/started with recklessness.

--

all this may help China and its proxies

--

those countries which are not in a position to negotiate tariffs may lost to those who can, further widening the rift between have and have not countries

--

this is much more devatating disruption than it is looking to be

--

it is equivalent to WW3

--

may lead to unthinkable collateral damage and consequences unaffordable

--

serious chances of down circuits in the global markets in coming days...

--

unless US subsidizes the costlier imports, inflation of un-substitutable imports will be swift.

--

habit changing of US consumers will be painful, and hence not happening

-

susbidy anyways will be laughable, akin to funding the tarrifs on the very countries slapped with tariffs.

--

till this mess is sorted out, global orders pipeline will crash/dry up

--

it is covid like disruption in scale albeit with longer term serious disrupotion

--

prices may shoot up globally for the items where there is a global scramble to replace US as supplier. and the prices may crash for the items which the supplier countries may divert elsewhere in distress selling once the demand in US slumps

--

if the US feels that it is losing or realizes that it has blundered, it may opt for flexing its military might in frustration.

This may be the end of NATO alliance

--

china may emerge as a saviour, albeit at a cost

--

strong domestic economies may survive with lesser trauma.

--

US currency will start losing its status as global currency

--

is it the definitive beginning of the end of the US dominance?

--

US has lost credibility and trust. It was still great, before this madness to make it great "again"

 

markets and politics

markets are part of politics...look at US markets...no president gets elected/reelected, if markets dont do well.... when trump demanded rate cut last month, the almost sure rate cut was delayed by the Fed as they wanted to cut it for the incumbant president but didn't want it to be done coinciding with trump demand

andre minassian, my idol, has openly said it time and again. he never uses charts, but trades on the basis of understanding chess position and vested interests. i strongly recommend his interview series given to ukspreadbetting.... he has given almost no interview before or after, but in this series, he has spilled all beans

https://youtu.be/VUtp5KVR09o?si=3l6GEPzzWhfKQSrL

what operators have seen beyond covid and why

when a patient sick for 6 months get s a little better, his meals jump in quantity versus when he was sick and couldn't and didn't want to eat due to sickness. this sudden smart jump in the diet is temporary. something like our economy witnessed in october/november. 

but it will be a big mistake to fail to look beyond this temporary increase in the diet which is the initial crisis survival reaction.

the patient is recovering and by now he has just taken in the "emergency" supply as a knee-jerk, fight back natural measure to bounce from critically low levels.

as he recuperates some more and recovers from reserve and ICU levels, his body would want to stand up, get ok and go to work.

there would be a lot of weight to be gained for a normal life. it is inevitable that this deficiency suffered and accumulated for several months is overcome, systematically or in a stampede.

this is what is suspected and expected from the economy in 2021.

and since markets precede the economy by 6 months (because operators have to befool the majority and do accumulation/distribution) the current market run can be understood. it is aptly incidental that vaccines have started appearing.

are we heading towards recession or depression?

experts are saying "yes".

but the reality and the answer have many layers to it.

first, it is a matter of when the normalcy returns. the longer it takes for the economy wheel to restart, the lesser the damage. any restart of business activity in April or May will do only limited and temporary damage.

second, not every country, every sector, every business will hit a recession.

while the world as a whole or a country as a whole may experience a recession (or depression) the extent will vary a lot depending upon which products and services we are talking about.

eg, while agriculture, pharma, FMCG, telecom may experience little or no recession (in fact boom), sectors like oil, hospitality, aviation, tourism may be hit.

so, everyone need not fear.

--

in the event it does take a worrisome time for the businesses to resume, what would that mean for businesses, especially small ones?

many small businesses would see their savings eaten up in this crisis towards bearing the fixed expenses such as rent, EMI's, interests of loans, salaries, dead inventories, canceled orders, etc.. while this is a big set back, this may not be the end of the world for them. one or two good years (depending upon when the lockdown gives way to normalcy) may fill their savings back. however, working capital is likely to have been stuck or lost for most businesses. they would need financial help by way of easy long term and cheap loans for the same.

anyways, businessmen would need to have the heart to bear some one-time loss.

thereafter, everything depends on whether and when the demand for every product or service starts. if only "when" is the question, it is good news. but it is the "whether" which is the big worry.

it is expected that while the demand for the "essential" products and services will spring back to early levels (or even more), the demand for "non-essential" products and services would have to wait. businesses of those products and services are likely to have extended pain period. as far as "luxury or fad" products and services are concerned, those businesses and people associated with them are likely to get hit hard. e.g. while big fat weddings will still take place, those will not be as big and as fat. people will stop throwing money for a long time till that casual air in the economy returns.

so, the real worry is for those businesses which fall outside the essential or priority realm.

rest all businesses would have to get into the "get over it" and "accept the setback" mindset and get on with it. this period will remind or teach every businessman the importance of cost control, prudent business decisions and efficient management.

it is expected that businesses will be ruthless in reducing all operating expenses including lay-offs, salary cuts, rental space surrender, closure of unprofitable or unessential operations, etc. every expense head is likely to get the attention. new recruitment will be unthinkable for a good time.

those who are in the "essential and priority" demand zone would still need to have a lot of patience while every broken piece in the supply chain network boots up and gets repaired. there will be a pipeline effect. the water will take time to emerge from the end of the pipe after the tap is turned on the other side.

the real concern is those people or countries which produce no product or service for which there is demand. even for the rest, competition in terms of price, quality and supply reach will be no less threatening. people, societies that produce and sell less and consume more are at a serious handicap for the emerging times.

while the overall demand for manpower with the required skills will drop, those with no skills or skills not matching the demand will add to the burgeoning unemployed and under-employed universe.

closure of small businesses because of financial or demand-supply issues will be to the advantage of well managed bigger business houses which have a bigger chance of survival and access to resources.

those who adapt to the changing times and challenges will survive and thrive at the expense of the others. the time is trying to tell us something. things will never be the same in the world. new world order will emerge and no one will be unaffected by it.

the judgment day

imagine a giant heavy wheel of stone moving like a potter's wheel on an axis

that is the economy of any country. the weight represents the number of people in that country dependent on that economy. the speed of the wheel is the size of the economy.

there are 4 principal thrusts moving that wheel

1) agriculture

2) production

3) trade

4) services

for a country which stops producing because of cheaper and better imports from another country, it loses the "production" thrust and is thus reduced to mere trading activity for that produce. and since the margin and control in trading is much lesser than that of production, the economic surplus and resulting prosperity dips drastically.

this is exactly what is happening to us in view of the production surrender to china. an overwhelming percent of producing hands have been reduced to the role of traders. even that is threatened by the online retail portals which are concentrated in the hands of just a few.

all this results in an increase in unemployment and underemployment besides a fall in the standard of living.

on top of this, any demonetization kind of shock further slows down the economy wheel. and if you add the corona lock-down situation there is a real threat of the economy wheel slowing to dangerous levels if not stopping altogether.

also, it must be kept in mind that less-enterprising, inefficient, non-leveraging and non-innovating countries/individuals produce much less than their fixed consumption (necessities plus luxuries). this results in a standard of living much less than those countries/individuals who produce more than they consume.

the current situation caused by covid-19 is leading us into an unpleasant chapter where our production and other economic activities are threatened to be disrupted beyond the slowdown already existing.

someone's income is someone's expenditure and someone's expenditure is someone's income. any stoppage in this circular system with infinite interconnections and multiplication results in serious damage to economic activity due to demand and supply disruption.

our sins of not innovating, surrendering production to imports, disturbing economic activities instead of strengthening them, not making helpful policies, not developing our human resource etc are pushing us fast towards the judgment day.

slowing or stopping an economy is easier than cold starting it because an economy is a complex balance of zillion of interconnected interdependent activities.

expecting solution to the european crisis?

dear venkat, solving the european crisis is like treating a chronic drinker.

if u abruptly take him off the alcohol (easy money supply, poor fiscal discipline, weak economy)
he is likely to show symptoms of alcohol withdrawal
which can be silent or life-threatening!

some of these symptoms are

increased pulse rate
increased blood pressure
increased temperature
restlessness
disturbed sleep
anxiety
nausea and vomiting
headache
irritability
tremor
hallucinations
seizures
and coma.

many of these symptoms are already there in the european union.

withdrawal symptoms last longer in older persons (economies)

withdrawal can complicate other illnesses (political, social, geogrpahical)

--

patients (like india) who are infrequent or moderate drinkers are less likely to suffer withdrawal symptoms.

--

gradually reducing alcohol consumption results in lesser withdrawal effects.

and such a course needs time, will power and luck!

--

if the world is a family
some countries in the european union
are not the only ones needing this daredevil de-addiction rescue.

there is a chronic patient on the other side of the atlantic.

as a member of such a family of chronic alcoholics
india has to bear with sleepless nights!

is this the start of the end of the US dominance?

“There is no means
of avoiding
the final collapse
of a boom
brought about
by credit expansion.

The alternative is only
whether the crisis should come sooner
as a result of
a voluntary abandonment
of further credit expansion,

or later
as a final total catastrophe
of the currency involved.”

Ludwig Von Mises,
Human Action,
Yale University Press, 1949






(thanks to jatin for sharing this and much more with me)

fed-up with inflation! (fedup II)

(this is sequel to "fedup but happy!")


one month had passed...

alpha, beta, gamma and delta had settled in their routine

on their 'fedup' island!

more importantly

they were

finally

happy!

one evening

they were sitting around bonfire

and partying!!!

alpha looked at the hut and said

"i am proud of my creation!"

--

beta looked at the bonfire he had created

took a bite of the kebabs he had cooked

and poudly said

"what food, what bonfire! cheers!!!"

--

gamma picked up his rifle he had used to provide security to his teammates from wildlife on the island

kissed it

and said

"no fear

till i am near!"

--

delta

silently listened to the pride-anthems of his buddies

and wanted to present his also...

but he realised that he had nothing to present proudly!

--

so he silently stood up

slipped into the hut

printed 4 "thankyou" (currency notes)

came out

and handed one to each

while keeping one in his wallet!

--

"hip, hip, hurrey!!!"

everyone got happier on receiving the grand "gift"

"we are proud of the finance minister of this island! our dear delta!"

everyone said in a chorus!

--

the grand party ended on a high note!

--

on monday

alpha gave his extra "thankyou" note to beta for extra fruits!

gamma saw alpha enjoying extra fruit and ordered for the same to beta

"here's my thankyou!" he said to beta, extending his note!

just then delta entered the hut

and saw alpha and gamma enjoying their "purchased extra"!

he too took out his extra buck and ordered for "more" fruit.

"its finished!" replied beta, making delta sad!

"have a heart, dear delta. none is left for me too! sold it all to alpha and gamma."

delta consoled himself.

--

but that evening

while alone

beta realised

that his supply for fruit was limited

but money supply in the camp had increased by 33% (4 notes to the 12 existing!)

he knew he couldn't produce more fruits overnight

he also knew more "thankyou's" were chasing his existing supply.

he realised that he couldn't disappoint anyone as well.

he had to do something!

--

by morning

he came out with a "unique" solution to the situation

he increased the price of the fruit platter

(rather every food item)

by 33%!

--

tuesday's newspaper

(printed by delta from his colour printer)

announced

"INFLATION REACHES FED-UP! SOARS BY 33%"

--

by afternoon

delta, the finance minister

decreased his cash-reserve ratio

snatched back extra 4 bucks from everyone (including himself)

tore them apart

to reduce money-supply

and tame inflation.

fed-up but happy!

dejected by the hit they got from the stock market

four friends

α(alpha), ß(beta), γ(gamma) and δ (delta)

left everything behind

and settled on a far off island

undiscovered and untouched by humans so far!

they named the island 'fedup'

why this name?

well they were obviously fed-up with the abnormal "normal" life,

but they wanted never ever to forget the "fed"

the federal bank which made the policies

that made them come to this island!

--

on reaching 'fedup'

they decided to make their own civilisation.

first of all,

they divided work among themselves.

α was given the task of making and maintaing the hut

ß took the responsibility for arranging for the fire, food and water

γ agreed to provide security cover from the wildlife, and

δ accepted the role of keeping accounts and managing the money supply from the colour printer they had brought along.

--

δ printed 12 currency notes

(they called it "thankyou")

δ distributed 3 thankyous to everyone included himself.

everyone gave 1 thankyou to the other 3 for their respective services!

this way

everyone provided one service

everyone consumed every service

everyone spent all three thankyous in his pocket

and was still left with 3 thankyous!!!

this cycle kept repeating beautifully

perfect money supply!

perfect economy!

everyone contributing

everyone consuming

no tension!

all inhabitants of "fedup" became happy!

--

till one day............





(continued in part 2)

remembering russia's pain

before disintegration

of the mighty USSR

in 1991

russians had huge money in circulation

all of which

couldn't be spent in russia itself

simply because the money supply was too huge

for the russian markets

to absorb!

so, russians spent it

in buying from other USSR states!

--

but when USSR disintegrated

other fellow states

became independent countries

with separate currencies!

rouble was no longer

worth anything there!

--

huge money supply resulted into

huge inflation!

products and services became very costly.

simultaneous external liberalisation

(as a precondition to getting huge dollar loans

for buying raw materials and essential commodities)

ensured that costly russian goods

got crushed under cheap imports

small corporates went bust

bigger ones barely clung on.

--

rouble suddenly became very very weak in front of dollar

crushing for inevitable imports

superb for nearly impossible exports

--

with the collapse of businesses

ability to pay taxes went down.

without taxes, government couldn't pay salaries

(most russians were in government jobs)

government couldn't undertake infrastructure development

or social welfare.

--

all this while

government couldn't opt for

deficit financing

as the money supply was already very very high

deficit financing would have driven it to suicidal levels!

so, those who had roubles without salaries

could still manage for some time

while others were on street.

--

all that the government could do was

1) either wait till even the rich russians were penniless

and then release more roubles, or

2) wait till inflation had hit peak (and trade had touch its bottom)

hopefully without serious casualties

and then gradually release fresh roubles.

none of these were good options

despite being nothing more than temporary hopes!

--

best options available were

- default on debt repayment saving precious foreign currency

- stop imports except most crucial

- export whatever was possible

- let russian industry stand up on its feet in the absence of imports

- reduce taxes, tax the rich

- not to stop paying salaries, but reduce them

- reduce ineffciency

- reduce payrolls, give others indirect employment

- let corporations and industries make profit

- let equilibrium come over a period of time

------

almost overnight

the communist

closed-economy

superpower

was reduced to a developing

capitalist

open-economy

struggling to remain afloat!

--

this was to be

one of the most painful economic transitions

in the world history

with no short-cut solution!

--

it was 1991 then

today is 2011

...20 years have past

the giant

has silently recovered

from the nightmare!

--

russia

has been forgotten

on the world economic stage

and it is a big mistake!

--

pray nothing ever happens to dollar

otherwise the results will be

hundred times more painful

for 3/4th of the world!

life inside a pyramid

a person's ability to live a good life

depends upon

his or her ability to spend money

which in-turn depends on

his or her ability to earn money

which further depends on

his or her ability to sell something (product or service)

which depends on

his or her entrepreneurial abilities.

--

everyone doesn't have those.

majority want

a plain good job.

--

allow one entrepreneur to be a billionaire

10 millionaires will be born

supported by

100 high networth individuals

supported by

1000 middle income individuals

serviced by

10000 salaried group

besides indirectly

giving passing opportunities

to 100000!

--

without entrepreneurs economies collapse!

and for entrepreneurship to be lucrative

we need entrepreneur-friendly business environment.

--

but one thing is clear

today's economies are fundamentally

pyramid shaped!

divided, inevitably, into vertical classes.

pyramid economies

result into

pyramid social set-ups!

--

also,

those not trained or able

to add any significant value to this pyramid

are likely to be left out

especially in the absence of a social security network!

"Who runs the World?"

Heard aloud

outside Airforce One

at 2300hrs GMT

10000 ft. above ground

while crossing the Atlantic

in pitch dark

"Who runs the World?

- God or America?"

after 70 seconds of pin drop silence

came the reply

"Americaaaaaaaaaaaaaaaaaaaaaa......!"

One hour passed....

before the volcano erupted again

"Whooooooooo runs Americaaaaaaaaa?

- God or Me?"

again 100 seconds passed

before the reply

"Meeeeeeeeeeeee...............!!"

One hour passed again.....

before a somber voice whispered

"How do I do it?"

this time there was silence for full 600 seconds

before the shriekkkkkk...

"I don't knowwwwwwww...................!!!"

"It is the trend boys! The trend is our friend!"

"And who will change the trend - God or Me?"

and then there was a deafening silence till the dawn

when came the reply

"Godddddddddddddddddd...............!"

"Amen!"

Why nifty may never cross 15000?

Before I discuss why nifty may not be able to cross 15000

let me assure you that even if nifty doesn't cross 15000 it won't matter much and it won't be such a bad thing!

But first, let us see how nifty is calculated.

Nifty comprises of 50 stocks.

Top 50 by way of 'highest free float market capitalisation' are selected.

Let us understand this.

Suppose a company A has 1 lac shares, and the current market price of each is Rs.500/-

So, the total market capitalisation of this company is 500/- x 1 lac = 500 lacs

But this is not the free float market capitalisation. This is total market capitalisation.

This is so because all 1 lac shares are not available for trade in the market.

Some of these are with the promoters besides soome locked with government etc.

Lets assume that there are 30,000 such "holy" shares.

This reduces the number of shares freely available for trade in the open market as 1 lac minus 30,000 = 70,000

So, now the free float market capitalisation of company A is 500/- x 70,000 = 350 lacs (not 500 lacs as earlier)

-------------

Now, calculate the free float market capitalisation of all companies

and shortlist the top 50.

Add the free-float market capitalisation figures of all of these 50 companies.

Let's assume this figure comes as F.

We are just one step of calculating.

Let's see how....

-------------

Nifty was launched in 1995 with base value 1000.

Does this mean that the market capitalisation of nifty 50 shares in 1995 was 1000.

Not really.

It might have been 10000 crore or so.

But how would it have sounded if someone were to say that nifty today is 1213 crore!!!???

It would sound ridiculous.

Certainly not an indicator.

So, someone must have given the idea of taking 1200 crore as 1000.

This is known as the base value.

So, what will be the nifty value if market capitalisation was 2400 crore?

Simple, 2000! (Because 1200 crore was taken as 1000).

Similarly, what will be the nifty value if market capitalisation was 3600 crore?

Simple, 3000!

--------------

So, now can you convert the sum total of freefloat marketcap of 50 companies into today's nifty value?

--------------

Now, we come to our main question

why nifty may not cross 1500 ever?

--------------

Would you be surprised if I told you that the list of 50 companies in the nifty fifty list keeps on changing?

Yes, it is true as most of us know that!

If the share price of a company in the index keeps falling, its market capitalisation also keeps slipping.

Finally it is no more in the top 50.

is given a silent good-bye from the nifty fifty

and is replaced by a new upcoming midcap-turned-large-cap blue eyed company!

--------------

Now, you will not be surprised that majority of the nifty fifty companies of 1995 are out of the present list!!!

Why?

They stopped growing (that fast)

and hence their share price and market capitalisation stagnated or dropped!

Others overtook them!

--------------

Every company in the nifty fifty has a limit of growth!

Every company grows old and must die (or atleast fade away respectfully), sooner or later.

Nifty value will keep rising only till India is a developed country

Even inflation will die down thereafter!

Thereafter, it will keep oscillating in a range.

But it will never be the same.

Old companies will keep making way for new companies in the top 50!

-----------

Want proof?

Look at Nasdaq.

It was near 2500 in 1999.

It is near 2100 in 2010 !!!

But the size of economy has increased manyfold!!!

It is the middle or the bottom of the corporate pyramid that is fattening!

-----------

So, 15000 or 20000 or whatever!

Nifty's growth hormones will subside even as the economy will keep growing

But investing opportunities in stocks

and trading opportunities in both nifty as well as stocks will always be there!