Yesterday with a nicotine addled brain, I sat on an amusement park horse ride. The merry-go round motion and my doped up brain, made me sick and want to throw up. Having been ejected from the ride, by the politely angered mothers, I wandered on the park grounds, still not able to walk straight. Nicotine was truly a strong master. I vowed then and there never to touch another cigarette, after I complete the one I held in my hand. Night had fallen and the many coloured lights and the whirling dervishes’ of swirling colour and sound of an amusement park, created a psychedelic show for me. Knowing that no one knew me here, I cared not what I knew. I staggered, I smiled, I laughed and I cursed. Then when flanked by the wheel of time with screaming children on one side and the stream of pain which bore lovers ensconced in each others arms I looked up at the sky and saw a blue moon. A blue moon, how many days had I spent searching for it; how many eons had I spent in its quest, how many untold lives have  I lived to get one glimpse and finally it appears when I have lost my senses, a fugitive from life. I reach for it, but the nicotine laughs and pushes me down; the only thing I have left, my body is now no longer mine. What use a body that rebels against you, what use a mind that enslaves you, what use a will that has no discipline; caged in this gilded prison with the blue moon achingly out of reach, and life tauntingly within, I do the only thing which comes easy, I run. My empire might be in ruins and my enemy my master, but I will no longer dance for them. After all I am my nemesis, so how can my villain exist without me. I call out to my rag-tag army, which comes but reluctantly and walk to the river nearby. Standing on the dark river-bank, with the sounds of life behind me and the silent darkness before, I marshal my puny army and walk into the unknown. My enemy, realising its imminent doom, recoils with horror from my steps. My voice, no longer my own shrieks and sputters, but the dark river accepts me. It knows me, as the child, who sailed paper boats, as the teenager who flipped stones on it, as the adult who won his battles only to lose the war and it welcomes me into her cold embrace. 

And so it happened, the last sane banker of the world has joined the currency devaluation competition[1] that is the number one world sport presently; but to be fair it is very difficult to follow the golden mean when the world is going mad.

The Swiss have surely done their cost-benefit analysis in placing their life blood that is the ‘Swiss Franc’ in the hands of the European Bankers. Especially so as the EU bankers seem likely to follow their US cousins in formulating an EU specific ‘QE’.

This development further ties in with our previous ‘टिप्पणी’ that the pricing of risk has gone for a complete toss. With such large amounts of money being pumped into the market, valuations are meaningless[2]. This uncertainty makes this a good time to make money and a great time to lose money.

So what does this mean for us poor [figuratively now, literally soon] retail investors. In a broad sense one of the last safe havens has now lost its glitter and this considerably decreases the options for hedging. So on the one hand institutions have large balances which they need to invest in an uncertain and quite fickle investor climate while on the other hand the pool of safe options where they can park their money keeps on decreasing; this in the face of continued and increasing pace of new money creation. Further with the EU and US double dip recession scares the almighty “lenders of last resort” start appearing shaky.

In short a lot of people have a lot of money and no clue about what to do with it. The only thing that can be done is buy physical or notional stocks of commodities which can be trusted to preserve value even in the absence of an economic revival. So retail investors that mean your household gold and silver price should keep increasing. Also it means unless you have a stomach made of iron or love being tortured, the one safe bet seems to be to buy metal. For you can be sure of one thing, if everything else fails, barter will survive.

Am prsently tied up and unable to go into a detailed analysis of the Lok Pal Bill and the facts bandied about in mail forwards and public fora. I will let a better person than me to articulate a criticism of the Bill: that is [Mr Pratap Bhanu Mehta http://www.indianexpress.com/news/of-the-few-by-the-few/772773/0

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Let me just say that corruption at the level of a common man is a function of over-arching government intervention; the solution lies is decreasing the government discretion in day-to-day life and not in creating another layer of bureaucracy. It would be prudent to remember that the 'path to hell is paved with good intentions'. The seductive quality of the "Jan Lok Pal Bill" is primarily due to its promise of a 'silver bullet' for corruption; a form of outsourcing of 'citizen duties' which is essential for the 'seasonal activist' or a frustrated civilian. Unfortunately there is no alternative to continued vigilance and constant demand for accountability from our government. Reposing faith in quick fix solutions is only going to post-pone the inevitability of systemic failure.

- Mike.

Was looking for Ambedkar's opinion on hero-worship that is a hall-mark of Indian politics. In this search came across one of his speeches which seeks to highlight the importance of "constitutional methods" of achieving social, economic and national objectives. In effect he argued for the abandonment of all methods used to achieve our political Indpendence viz., civil-disobedience, strikes, hunger strikes and violent revolutions.

The original text can be accessed at this link: http://parliamentofindia.nic.in/ls/debates/vol11p11.htm

My attention was brought to this speech on "Anarchy" through this blog: http://blogs.newsx.com/thirdrock/2010/08/01/we-the-people-and-the-grammar-of-...>

The impact of the US downgrade might not be the return to a full-blown recession as forcasted. The real impact will however be on the municpal debt market of the United States of America. This week we should see a number of town halls in a somber mood and a number of US citizens facing a continued loss in living standards.

Assumption: There exists a “disconnect” between the markets and reality with regard to valuation and methods to determine the same. Also assume that we are all rational investors.

The simplest maxim for a retail individual is “buy low, sell high”. Investment theory, macro-micro economic policy everything else is just so much noise. Now reflect how many times you actually followed this maxim. As with everything else in life, practical application is the greatest challenge. It is very difficult to follow the maxim when the neighbours are all either panicking or in euphoria. Going with the herd is as strong an instinct as life-preservation, but a great deal more subtle.

Look at the present situation, the domestic market we see today is on the last legs of the “mispricing” of risk phenomena, that has been the life of the party for more than a decade. Institutions “mispriced” the risk of perverse incentives, macro-economic policy wonks mispriced the importance of achieving a stable inflation rate, loan officers “mispriced” the cost of giving loans to high credit risk clients, bankers “mispriced” the cost of packaging and leveraging risky products and rating agencies “mispriced” the cost of closing their eyes to everything.

Now lets agree that we all got sucked in by the aggressive expansion of the last decade. Truth be told we are still reluctant to give up this story. The present situation is pretty muddled and for a retail individual extremely confusing. Especially so as the present market rally has come on the heels of a sobering shock. Look around, the BSE and NSE are hovering within sniffing distance of their pre-2008 highs along with high growth for gold, silver, oil. Throw in a few scares like the rare earth shortage, fear of sovereign default contagion spreading through EU, political instability throughout the middle-east, food price inflationary shocks, natural disasters and we have got the recipe for the perfect storm. The market is currently living out its half-life moment.

The prime market of the world, United State of America is presently involved in papering over its shot up economic engine by monetising its GDP. The ill-effects have been out-sourced to the world, such is the price we pay for the “reserve currency”. Credit expansion with low policy rates and sustained high liquidity has been the default policy and the same is being rolled out on a world wide scale in an attempt to ride out this storm. For the politicians and policy makers such short term strategies make sense especially in a democratic set-up where the costs will be borne by the next government.

The present uncertainty is not just a regular event in the economic model, but a result of limitation of the model. It is imperative that the economic model of sustained high growth, low interest rates, high and continuous liquidity with large resource utilisation be discarded. In the meanwhile, the retail investor will continue to be taken for a ride on the wildest roller coaster in the world.