TRUMP victory & it’s impact on Global Financial Markets

The people of the world experienced a shocker as they woke up on Wednesday morning, the 9th of November 2016 by witnessing the unexpected HILARY loosing to DONALD TRUMP.

The policies of this new leader of world’s richest democracy are uncertain & unpredictable. In his victory speech he emphasised on a $500 billion infrastructure led investment growth for the economy.

This shall have enormous futile impact on global economies except the United States.

A fiscal stimulus as big as $ 5 trillion can revive global commodity markets except crude & create just the inflation required for long anticipated FED interest rate hike. This would create additional jobs making every statistical aspect hunky-dory for further rate hikes. This would bring GDP growth back to the world’s largest economy.

Shouldn’t this be good ?

That’s what most of the experts would say. There is a general presumption that if US  does well India fares well too.

Well, have a look at this then..

A FED rate hike would mean a stronger dollar & increase in US T-Bills yield. This would result in large outflows from emerging markets like INDIA who is trying to bring in FDI. Rupee will be weaker, RBI will have to intervene.

Further the constitution of United States has granted power to its president to take trade decisions (without a majority in parliament) for upto 60 days & levy an import duty of 40% flat on all goods & services from any country.

If trump makes a move, China & Mexico are likely to be his immediate targets. This will result in lower Chinese exports hence a slowdown in the second biggest economy which is sitting on a debt pile which if rises any further can cause worst ever global recession.

Globally most banks will go bankrupt, people will be jobless & their wealth will be less then half the value of what was before as most of their investments will find no/very few buyers. There will be hunger/theft, poverty levels will rise.

There is one community which will benefit if such uncertain event takes place & that is the ones having enough exposure to commodities like..

GOLD / SILVER / PLATINUM / DIAMOND..

Just hope the actions of this newly elected US President do not turn out as he portrayed to win his votes.

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The European-Chinese Recession 2017-2020

Global markets are at or close to all time highs on back of signs of better US economic growth outlook, liquidity push by global central bankers & recovery in commodity prices from its 2015 lows.

Time for a global recession again ?

The next global recession the world is going to witness shall be from Europe / China or both.

China has been BORROWING $ 6 for a GDP growth of $ 1. On detailed historical observation The United States of America pre Lehman crisis, borrowed $ 3 for a GDP growth of $ 1.

There has been observed stagnant or negative growth in European continent as a whole. Major European banks are at the verse of bankruptcy. Post brexit the situation has worsened. Much below IIP growth posted by the European growth engine Germany, was the confidence breaker. When a country as fundamentally powerful as Germany fails to post results, investors can expect no gold rush in other European countries. Several European banks are in extreme stress with a total pile of 1 trillion $ debt. If one major bank fails, it shall have major ripple effect on whole financial framework. European banks have started to trim EM exposure. RBS has already sold it’s india business to RBL bank, HSBC & standard chartered are trimming their operations.

If European banks fail, the first ones to get caught in the ripple effect will be Chinese banks which are most vulnerable in present scenario, amplifying it’s impact making it the worst recession the globe has ever witnessed.

Unless growth does not pick up in europe, which is not likely to, investors should be ready to face the worst.

Why next 5 years can make a common man rich ?

In the recent course of event, the finance ministers of G20 countries pledged to use all monetary instruments under their comprehension to ease the stress spread by growth laggards. Helicopter money is the only thing they opt to in intense conditions like this, just the way they conventionally did in the past.

This decision when implemented shall bring a global glut of liquidity. This will bring more amount of surplus at people’s discretionary spend while global investors would take this opportunity by investing in the best asset class that would be spurred by the surplus liquidity I.e., equity.

The brightest spot is india.. why ?

1.GST

2. Positive interest rates.

3.  More FDI allowed & ease of doing business.

4. Public expenditure at highs & private expenditure has bottomed out.

Why merging of PSB’s is no solution to NPA problem.

No matter how much provisions a bank makes, considering the figure of NPA’s of over 6 lakh crores provisions won’t be a sufficient measure. 

By merging banks the government only seems to be creating a time bomb which might burst if it is not quick to infuse sufficient capital ‘within a calculated time frame ‘.

RBI can only tweak norms to make recovery more believable & ensure more smoother working. 

I wonder why RBI doesn’t bring a rule which creates a specific MCLR  ‘margin’ regime which if strictly followed could inherently help banks improving their books without worrying about market competition. 

Till now the government has only made the figures bigger & announced only 25,000 crores of funds for PSU Banks.

Even China faced similar, in fact worse problems half a decade back but it managed to solve it’s NPA mess.

The good part is, The Reserve Bank was quick to notice the problem but as the track record suggests, implementing the policy might much take a longer time which makes it the major hurdle for Indian Public Sector Banks.

Br-exit is not just a mediocre hype, its a possiblity.

It is a routine for countries in the European Union to vote their stance for a possible stay or exit. Mostly its a mere Formality as they always vote in favor of a stay as the common consensus suggests , a union collectively makes the European region stronger in this adverse economic scenario.

Britain’s referendum on 23rd is no mere formality. It is a country where now a majority believes that being in EU makes them more dependent & not at its full potential. There are certain by-laws that need to be followed by every  EU member country as a due diligence to other member countries which felicitates problems of each other at both macro & micro levels.

Recently the European Central Bank has adopted Negative interest rate regime just as other struggling major economies like Japan has adopted. Which Infact doesn’t seem to be helping much.

You pay the banks for keeping your deposits safe & banks pay you if you borrow money from them. This is a against all rational of the principal reason of having a central bank & suggest a failure in keeping up with good quantitative & qualitative monetary policy measures.

Even if this negative interest rate regime has started, it should not stay for long.  The major question now will be, how much will Europe sacrifice at time when they bring the interest rates from negative to positive ?

& is UK clever enough to recognize its possible implications in advance and react comparatively proactively as against reactive EU members ?

 

Why Raghuram Rajan is no longer interested in extension ?

Who was once a well ranked officer in IMF to being the governor of The Central Bank of India. Yes, that’s RBI governor to me and I am sure to most of the Indians. The world appreciates his work of the past and present. His being a governor has helped the country garner investor confidence which only brings more and more foreign investment. Since the inception of his tenure the governor has been astonishingly successful in keeping the Indian rupee less volatile which in fact has generated immense investor confidence in the currency & country. Now since no perks might seem to influence Rajans decision of moving into academia.

Now, what can the businessmen of the country expect from the RBI after his term ?
Well that’s pretty simple to predict. The government is trying to bring the interest rates down. It won’t work with the new governor too as any central bank govorner would prefer quantitative assurance more than short to medium term fundamental sentiment. Since inflation is perking up, the actionable margin is no longer available in the RBI’s warchest.

May be the governor has left because of too much politics, may be because he says he wants to focus into teaching, but I am not convinced.

Why would he not prefer an extension of being the govorner of the largest democracy & the fastest growing economy in the world ?

Is there too much politics to handle for an honorary & responsible position ?

Sure seems to me.

The Union cabinet on Wednesday spelt out plans for a complete overhaul of the aviation sector with an eye on the future. The cornerstones of the new civil aviation policy are competition, consumers, connectivity (within India and with the rest of the world) and investment—both from domestic and foreign investors. The government is convinced that this will be the key to realizing its target of growing domestic passenger traffic nearly four-fold to 300 million by 2022. “We need more airlines, more aircraft serving our skies, so if more airlines want to come to India they are welcome,” aviation minister Ashok Gajapathi Raju told reporters. It is a journey similar to the one pursued previously in telecom in which distinctions between technology platforms and licence types were progressively removed and investment rules liberalized. Accordingly, the Union cabinet partly scrapped the so-called 5/20 rule, which restricted overseas operations to only those airlines that had five years of domestic flying experience and a fleet of at least 20 aircraft. The five-year criterion has now been scrapped. “The questionable legacy of 5/20 rule has been thrown into the dustbin today,” telecom minister Ravi Shankar Prasad said, announcing the cabinet decision. Ever since the government proposed to scrap the rule last year, the aviation ministry has seen lobbying by older airlines such as IndiGo (InterGlobe Aviation Ltd), Jet Airways (India) Ltd, SpiceJet Ltd and Go Airlines India Ltd and new entrants such as Vistara and AirAsia, in both of which the Tata group has a majority stake. Click here for enlarge The latter wanted the 5/20 rule scrapped while older airlines wanted it to stay. Despite that, the decision was welcomed with caution by Vistara and AirAsia. “We would have preferred, of course, that the 5/20 rule be completely abolished to ensure that Indian aviation achieves its full potential,” said Phee Teik Yeoh, CEO of Vistara. Vistara, a joint venture between Tata group and Singapore Airlines Ltd, which is one year and five months old and has 11 aircraft, needs another nine planes to fly abroad. And because the government doesn’t want the airlines to focus on international operations at the cost of domestic ones, it wants airlines allowed to fly overseas to ensure that domestic flights account for at least 20% of their total seats. AirAsia India’s new CEO Amar Abrol said it will now focus “aggressively” on increasing the fleet size from six at present and achieving the target of 20 aircraft. He did not specify any timelines. “Though a 0/0 or 0/10 would have been more than welcome, the amendments that have been made to the policy are encouraging,” he said. All airlines are currently also asked to place a certain percentage of their metro flights on routes which are remote and, in some cases, not as profitable. The aviation ministry has, under the new norms, made this even more strict and this would mean airlines will have to rejig their networks by the winter of 2017. “This is going to be very challenging and will create problems for how we have planned out routes and network,” said a senior airline official who did not wish to be named. The ministry also announced a complex regional connectivity policy that seeks to connect unconnected towns with the help of viability gap funding. This will be done by capping fares at about Rs.2,500 for those routes and helping airlines with some funding to ply them. The funds will be generated by charging a cess on other domestic flights. “Welcome to the world of affordable, convenient and cheap flying. Please spread the word,” said civil aviation secretary Rajiv Nayan Choubey, explaining the contours of the policy. Some airstrips/airports that are being used for cattle grazing and date back to the World War era will be developed as no-frills airports at an indicative cost of Rs.50-100 crore and could host such flights, he said. The draft guidelines on regional connectivity will be placed on the ministry’s website in the next 10 days, said Choubey, who has been pushing for an integrated aviation policy since last year. The policy will also allow a open skies agreement on a reciprocal basis with India’s fellow-members in the South Asian Association for Regional Cooperation (Saarc) and countries located beyond 5,000km from Delhi. An open skies agreement means airlines from two countries can operate an unlimited number of flights to each other. The 5,000km area excludes countries in West Asia which have become hubs taking traffic from India via their airports to the US and Europe, among other regions. Government auditor Comptroller and Auditor General of India had come down hard on the aviation ministry for losses accruing to state-run Air India because of flying rights to carriers in the United Arab Emirates. In its new policy, the ministry also allowed airlines to handle ground operations themselves. Airlines went to courts against earlier orders by the ministry that required them to outsource their ground handling. Ground handling is critical to maintaining operational sanctity, especially for low-cost airlines such as IndiGo and SpiceJet that bank on faster aircraft turnaround time on ground to bolster profits. The policy has also made it clear that it will implement a so-called hybrid till of economic regulation for future airports. Under the hybrid model, airport charges are based on an airline’s aeronautical revenue and part of its non-aeronautical revenue. Independent airports regulator Airports Economic Regulatory Authority will now have to follow this. The ministry has also given some sops to the Rs.600-crore annual maintenance, repair and overhaul (MRO) business, 90% of which is outsourced to other countries due to high taxation. MROs will not have to pay airport royalty and additional charges going forward. Land would be earmarked for MROs in all future airport/heliport projects where potential for such services exists. To help some 8,000 unemployed pilots holding commercial pilots licenses, the aviation ministry will develop a scheme with budgetary support for type-rating (training on specific type of aircraft) on planes like Airbus A320s and Boeing 737s. Such training can cost anywhere around Rs.15 lakh per pilot. For investors, the policy is a welcome sign as it clears the future roadmap India wants to take, said Dinesh Keskar, senior vice-president (sales), Asia Pacific and India, at Boeing. “This policy stabilizes the uncertainty that was prevailing in India. Now the future investor, airline operators have a reasonably good understanding of the future path of aviation in India,” Keskar said, “This policy is progressive—certainly for regional connectivity.” Shakti Lumba, former head of operations for IndiGo, said the policy may be difficult to implement. “A policy has to be coherent, it has to be fair and equitable and implementable. I see major implementation issues in the policy because of so many ifs and buts involved. It looks more like a wishlist.”

The Civil Aviation Policy ‘A REFORM’.