Low and stable inflation and interest rate are important for low and stable inflation and interest rate expectations...

The current growth rate is 10% when the base year's growth rate was -24%, so the total growth rate would be 24% plus 10% equals 34%... Though using the same base year to calculate future growth rate, a 4-5% growth rate would mean 40% growth rate...

Low and stable inflation and interest rate are important for low and stable inflation and interest rate expectations and spending, both, consumption and investment...

Prices or inflation expectations depend upon current price or inflation... If investors see high prices or inflation they expect higher inflation and demand more and hold or lower supply, which reinforces higher prices or inflation or if they see lower prices they expect lower prices or inflation and increase supply and hold or reduce demand, which reinforces low prices or inflation...

People should sell stocks only if they need the money... Investors’ expectations themselves are creating highs and lows, if they expect a correction they either wait to buy or sell which actually lowers the stock price and if they expect appreciation they buy or hold supply which again increases the stock price... 

And, investors shall buy low and sell high, only then it would be profitable... Both, low and high price expectations movements are important for investment decisions and returns... Estimated or expected earnings due to higher prices or inflation and margins are pivot for increasing investment demand... Any significant correction would be an oppourtunity to lower average cost and increase returns in the short run and longrun, too...

Moreover, any big correction is very unlikely in the short run... we have limited time period... Long run has moretime to be uncertain and for deep corrections...

Bitcoins and others fate would be decided by how many countries and ultimately markets and people accept it as a medium of exchange and investment... It could be a cost effective way facilitating exchange... The fear that it is an easy way for illegal transaction is overdone as it has foot-prints on the worldwide internet... like digitsation of bank accounts... It is still out the purview of tax, and regulation and tax is important and good for its future ... The US has not ban cryptos and the Fed itself is likely to introduce its digital currency...

BJP won the last election on the pyres of Martyrs' of Pulwama and the action taken after that which was an acute failure in intelligence, how did they got so far in the country (terrorists)...? No one is safe as far as corruption is not weeded... Terrorist attacks are still normal in Kashmir... Cease fire violation continues...

Modiji must improve human capital infra by imparting skills and specialisation which are likely to improve competitiveness and productivity and more demand without which the demographic dividend would be lost... The government must liberalise FDI in education and skilling...

Low Prices Increase Demand and Price Expectations, too...

 Supply creates demand and demand creates supply, too... Demand side economists favour inflation to increase demand and supply and growth because higher inflation would mean higher demand and supply and price expectations and the supply side says that lower prices increase demand and supply and price expectations... Expectations could be reinforcing the prices as we see above... Economists says that in the longrun productivity is everything which means that business could produce more at lower cost and price... which increases demand and growth... Low prices are good for demand and supply, too, as high prices for spending... Low prices increase real wages and incomes and savings, too, though higher prices could increase nominal wages and incomes, and savings, too... It is not feasible to divide people to say that lower inflation increases debt burden and higher inflation lowers debt burden... because lower inflation also lowers cost and real wages and higher inflation also increase cost and prices and wages...

We know that the higher inflation is due to the low base during Covid because prices fell due to low demand, but they have bounced back quickly... Higher inflation in 21 could lead to the debase effect next year turning to lower inflation... Lower inflation or price expectations could increase supply that could be self-sustaining, since lower inflation expectations would make investors delay demand and/or increase supply which could reinforce lower prices.... It is true for both the stock market and the broader economy... Though savings could lead to higher investment later... savings and investments are an increasing function of time... People save more and more as the time pass and invest more, too...

Minor correction expectations are true for the short run only, but the long run trend of the stock markets across the world have shown a steady state growth, ie they are moving upwards despite corrections... People who invested for the long run have been benefitted from the investment even after corrections...

Moreover, any big correction is very unlikely in the short run... we have limited time period... Long run has more time to be uncertain and for deep corrections...

This isnt true that this is not the right time to put fuel and electricity in GST... which have heightened inflation expectations... There is a need to raise the productivity in these sectors to stabilise the price level and interest rate and expectations... which is important for the financial stability... Lower prices would increase real wages and exports too due to lower domestic exchange rate...

All countries want large markets for their produce at lower cost... A strong exchange rate would help attracting investors... If a country borrows in its own currency the risk of default goes nowhere... Settlelling exports/imports in own currency would also lower the exchange rate risk and demand for foreign currency and lower exchange rate expectation which could delay demand...

INDIA has a federal structure... Few years' back following the decentralisation tax devolution has moved in the favour of the States... More revenue has been deployed to the States, now...

INDIA is lucky that it has a low and stable inflation, business costs including the interest rate are low and relief from the lockdown... It increses the asymmetry in equality... The govt must help bring liquid equity saving deposits... The labour must have a share in the the top companies to reduce inequality...

Banks may introduce savings deposit linked with equities which may outdo inflation and and are liquid than bonds, bonds are safe heaven investment, but to gain from bonds one must hold on longer, but there are shorter term bonds available too... But, no such limit with stocks... They should be invested in the index funds... The risk is less... They are directly significant for the index... In the long run equities have shown consistent upward rise than other asset class more than inflation... Banks shall buy only significant corrections in the index funds...

A slowdown in China like the Global Financial Crisis 08 would benefit INDIA due to lower global commodity prices... especially oil prices... Bright growth prospects could attract higher foreign exchange inflows... INDIA would be fastest growing economy in 21 and low and stable inflation and adequate foreign exchange would help weather any crisis and bounce back quickly... INDIA has a lot of pent up demand due to higher unemployment and lower real wages due to skills and specialisation gap...

Cryptos are not substitute to fiat currencies, but alternative of investment assets... The meteoric rise of bitcoin has given space to hundred of coins now...

Labour Needs Skilling and Capital is Preserved by the Central Bank...

 Economics shall also concentrate on the distribution of labour according to specialisation and skills in the economy, besides just the distribution of income... According to the labour theory of value the price of something is decided by the amount of labour used... 

Adding skills according to the demand of economy could increase productivity and demand and growth... To catchup China on the growth INDIA shall skill labour to reap the demographic dividend...

The investors unconsciously create booms and busts based on price and interest rate expectations... If the majority expects that prices could increase they buy more that actually increases the prices and vice versa... 

Though if they remain invested and increase investment, at significant corrections, they could increase gains by lowering the average cost... Higher interest rate expectations in the US would increase inflows and lower the interest rate and vice versa... 

Higher inflation adjusted yields and exchange rate in the US coz of its safe heaven image could increase interest rate and exchange rate expectations in the emerging markets to stop the exodus... 

The arbitrage between the US and INDIA could equalise by the investment behaviour... Higher interest rate expectations in US could increase interest rate expectations in INDIA in a competitive global economy and vice versa...

The liquidity doesn't directly add to the financial assets' demand, but only through long-run debt and interest rate and then lower the short term interest rate and higher money supply lowers long term interest rate and then short term interest rate... which increases the productivity of capital... and profits/margins and earnings... 

The RBI during out flows could sell dollars to contain inflation and depreciation and outflows... The investors’ expectations about the central bank policy affect the investor behaviour which could be self fulfilling, rate cut expectations could delay demand and increase supply which would further lower prices and vice versa... 

If people expect appreciation they buy which further increase appreciation and vice versa... Around the globe we have evidence of convergence in real exchange rate, the long run trend has been strong exchange rate as the time pass and the economy grows... 

It could start a virtuous cycle of investment and inflows... It would increase domestic demand due to high real wages/lower inflation, higher real interest rate due to lower inflation and increase exports due to low inflation/ domestic-prices...

If the pre pandemic growth was 8% then growth in June 21 would be 8% plus 1.5% = 9.5%.... Overall this fiscal, India would be among the fastest growing large economies, a GDP of 9.5% but shorn of the underlying low-base effect, the economy will be only 1.5% above the pre-pandemic level seen in fiscal 2020... The growth rate would be 9.5%...

Higher transport cost and inflation and depreciation and higher import prices could make the export sector uncompetitive...

The Fed's message is clear that it is there to take care of people's money, during slowdown it would increase liquidity and demand/supply and investment/employment and increase prices and during high growth it would contain liquidity and demand/supply and investment/employment and prices... 

It is consistent with Fed's objective and feasible... People should not worry about their investments; the Fed would take care of their investments...

Tapering Would Help Buying At Lower Prices...

 Inflation is indeterminate when the supply and demand increase simultaneously... Higher inflation is also due to the lower base effect when the covid struck in 2019... Higher inflation this year would lead to the debase effect next year according to the chain based index... Few people understand percentage when most data is given in the same and have a base or base year to calculate the percentage and negative growth does not mean growth lower than zero, but only lower when compared to the base year or quarter... INDIA had a positive growth during covid, but lower than 2018 the base year....

A higher fiscal deficit during this period of crisis slash lower revenue from oil slash more debt could increase real wages and incomes and demand... It would reduce transport prices across the spectrum and would increase productivity and growth... Lower inflation would increase real GDP...

Raising taxes and ignoring the public's will during the pandemic is against the spirit of democracy... Give some relief to the people not accounting...

The govt is procrastinating decision on fuel prices... It could help (lower prices) and increase real wages and incomes... Increasing productivity requires cost competitiveness and lower prices to increase demand and price and growth expectations to increase spending during crisis...

Even the Fed could not gauge the prices correctly for a long time... All predictions about the prices and interest rate are nothing more than horoscope of the economy due to a variety of exogenous factors and ignorance about the top and bottom of price and growth... Though the central banks actions and the resultant expectations could become self reinforcing... For example, higher borrowing cost and expectations could further reinforce higher prices by lowering supply and lower borrowing cost and expectations could further reinforce lower prices by increasing supply...

The investors shall find relief from the fact that the Fed is reaching its goals of growth and inflation and the bull market could continue as long as prices and growth rate is stable and the Fed would continue the bond buying albeit at slower pace... Any reversal in the stimulus is still far away and possibility is that if the economy diverges from its path of full employment and growth and price stability the Fed could again provide the stimulus...

The main thing is that the Fed could gain ease quantitatively if the recovery is derailed and unemployment increases culminating in slowdown... The Fed would not want to precipitate any prolonged correction which may push it to ease liquidity to increase demand... The stock market investors were encouraged by the prompt action by the Fed after the covid hit in 2019... The Fed could continue providing stimulus in the face of adverse outcomes...

Expectations of outflows and depreciation could be self fulfilling by the way of selling financial assets in the emerging markets, outflows would increase depreciation, too... The emerging market central banks shall sell dollars in order to stabilise the situation and stop outflows... Low prices are important for spending decision coz it increases demand... Lower prices are good, but not lower price expectations coz the latter could be self fulfilling, if everybody expects the same, they would hold demand and increase supply which would further reinforce lower prices and increase volatility and vice versa...

Money and Expectations...

Investors shall learn that the Fed would just stop inducing the investors and any reversal of the QE is highly unlikely, it would just stop accommodating and not reverse the QE... The money is likely to remain in the system which should help stabilise growth and prices, in case rate hike is still years far... The Fed has also said that it would warn before any change in action... The danger is not quite imminent and is still far away by years...

Technically, the central banks would first stop and not reverse the easing abruptly, higher unemployment would make them tolerate higher inflation... 4-5 % inflation is not that high... With supply side correction inflation would remain contained... Covid has hit growth which could take time to normalise, a third wave would be only mild with 50 crore vaccines so far and lose economic policy... Nonetheless, from an economic policy view inflation expectations are more responsible for spending decisions and higher money supply is very vital, only then people could spend... Raghuram Rajan’s group with Banerjee is quite awkward coz the latter demanded unemployment transfer to poor... means more moneysupply and demand and prices... The Fed has said that any reversal in the accommodative stance is still 2 yrs away... So the current stance is to stabilise the situation...

The RBI has adopted a flexible inflation targeting and it has relaxed it during covid and low demand and low supply and higher prices... Higher prices also mean that supply and demand would revert back...

From the spending perspective inflation expectations are important... Higher inflation expectation means people would not delay spending and supply could go down which could further reinforce higher prices and vice versa... Though, lower prices also increase demand and lower supply and would increase price expectations and vice versa... As above, higher price and expectations could become self-sustaining...

Nonetheless, stable inflation and expectations at full employment could also help stabilising spending and growth...

Generally, lower inflation expectations could derail the recovery because people could delay spending and increase supply which would further reinforce lower prices and could be self propelling... Though, lower inflation or prices could increase real wages if employment remains stable... Nonetheless, lower inflation and expectations could also increase the value of money overtime which would increase demand... People would feel richer and would save less for future and could spend more... Otherthings remaining constant, given full employment lower prices would mean increase in real wages and real profits... If productivity increases and it lowers prices without affecting employment that is welcome because it would also increase demand, other than higher price expectations... It would also increase labour savings which could further be used for production; higher productivity means lower prices and higher demand and 

Maintaining status quo means that the RBI wants to stabilise expectations when gradual opening and more supply would help price correction in the broader economy... Lower prices mean that demand and prices would go up coz all would try to purchase at the sametime if got money... Higher price expectations from a low base increase demand and spending...price expectations...

Among INDIA's most pressing problems are the irrigation facilities at one place and floods at other, every year that change the inflation dynamics and uncertainty for the borrowing cost... Building irrigation and dams and reservoirs are in the priority list... Only 50% of land has irrigation facilities... The other problem is fuel... A strong rupee would lower import prices and would help, real exchange rate would increase... INDIA should try to settle imports in the rupee and also for foreign borrowing... which could increase its credibility by reducing the risk for creditors... A strong rupee would also increase foreign exchange inflows…

The vast pool of the underemployed and low productive jobs due to lack of skills and lower wages could be used to gain a competitive edge while increasing productivity...

The RBI may sell dollars to avoid any oil price induced inflation and expectations... A strong rupee could increase foreign exchange inflows, higher bond prices and equity valuation expectations could increase inflows... The RBI could recoup dollars at lower exchange rate...

Consistency and Credibility...

Stability in interest rate and employment and inflation, and not, too much higher interest rate and employment and inflation are feasible and consistent with a good economic policy and could bolster the credibility of the central banks... They need a flexible inflation targeting with in a band in which r* or the natural or neutral interest rate could remain stable... and expectations, too... Normally, higher interest rate expectations lower demand and increase supply and lower price expectations and vice versa and could be self-fulfilling, therefore stability in expectations are vital for managing inflation and unemployment... Managing expectations are important for the adaptive expectations and the rational expectations, both... Adaptive Expectations are based on current and past experiences, if people experience inflation they expect inflation, and vice versa, and Rational Expectations use the latest data and information and is evidence based...

INDIA needs value for rupee for domestic as well as foreign consumers, means we need a strong rupee for domestic and foreign exchange... It means that productivity would increase and prices relative to money would go down or with constant money supply which also increases the value of money and demand... The interest rate is a flexible price; interest rate could be changed depending upon employment and inflation or price level... Depreciation is an artificial tool to increase demand for exports, it increases nominal exchange rate relative to G&S, it makes money cheaper by increasing money inflation and reducing domestic demand... A strong rupee and higher domestic and foreign exchange rate and also higher imports due to increase in productivity and lower prices...

Prior to covid INDIA was one of the fast growing economies, though the economists say that it has a higher potential and the economy was still recovering from the last slow down... INDIA's fundamentals are sound; inflation was low and stable... If we say that INDIA could be the next china, with low wages and plenty of labour supply, though it requires skilling, it would not be wrong... INDIA has improved a lot on the ease of doing business... More over it has borrowed less in other currency and low interest rate in the developed countries could be used to finance the infra needs...

There would be recovery and that's sure... Employment has been hit hardest which is crucial for increasing both demand and supply... The inflation target has been set by the govt, but it is equally important to set the unemployment rate at the natural rate... The RBI too barely discusses the unemployment rate... Providing forward guidance about interest rate expectations and stimulating the economy activity requires clear unemployment and inflation targets... That would help consistency in the monetary policy...

If the RBI keeps buying dollar for reserves, it would make the strong dollar self-fulfilling... as the dollar becomes strong, the country would need more dollars to pay imports which could further increase dollar demand and price expectations...

INDIA is one of the big exporters of refined oil (fuel)... The govt could repeat the mistake of exporting the refined oil when domestic prices are skyrocketing, like the UPA continued exporting the cereals when domestic prices over-shooting at 20%... We are a democratic set up, taxes could be only be imposed by the public consent... Afterall, it is the public's money... When the govt increases taxes and prices its own cost increase, too... which could also be self- fulfilling...

Rising fuel and transport prices reduce spending, but increase government spending that involves a trade-off, at one place spending is going down, of people, and at other it is going up... Money is being taken from people and given to government which then again changes hand... It would make almost no difference to the multiplier and growth... Fuel is a necessity and important for managing inflation, higher taxes on oil reduces real incomes of the poor in the economy and higher oil prices also increase the cost for business and transport... It could not categorised as productive because it increases the price level and reduces demand... It lowers productivity...

Till farmers sell their crops individually they would be the price takers, though if they bargain collectively they could command prices and could release or cease supply to get a respectable income, like the OPEC... Moreover, if they deal with a large number of buyers, buyers would bid the prices upwards... More buyers/demand means more prices...

If everybody follow some rules of thumb, like sell only on the high price range and buy on the low price range everybody could gain... Moreover, if there is consensus, about buying and selling price, risk could be lowered, investors must avoid irrational exuberance, not expecting too high or too low...

Share quantity is also important... If all investors invest in staggered amounts/quantity, stock prices would increase in the shortrun... Returns would be multiplied...

Stock prices depend upon the growth rate, if the actual growth rate is higher than the warranted growth rate, the stock markets could be rational to continue increasing investment and demand and prices, with periodic or cyclical corrections and buying more to lower the average cost...

INDIA shall not produce goods in which it has a comparative disadvantage means what it produces at higher oppourtunity cost and/or higher prices or in which it cannot produce much or have lower productivity...

The marginal propensity to consume (MPC) of the poor’s is higher than the comparatively rich groups and inflation expectations are also important for the spending decisions and savings, too, poor people's marginal propensity to save (MPS) is also high and again also depend upon the inflation expectations, if the cost of living would increase people would also save more for the future, out of an increase in income... If people expect lower prices they delay demand and increase supply which actually lowers prices and vice versa... Though, it is also true that in the shortrun there is alimit for income and demand...

We need to look forward...

When we use the word dynamics it means that things are expected and subject to change, any commentary is expected to change in the longrun, the economy would be at a steady state growth, so longrun investors would always gain... 

In the shortrun investors would gain by investing more at lower prices and book profits... 

In the stocks and bonds investors try to buy low and sell high and when they are based on expectations it could also be self fulfilling...

If they expect that stock price would fall as a result of lower earnings expectations or contraction in the economy, they try to sell that actually lowers the stock prices and if they expect that earnings would improve and the economic prospects are bright, they buy which further increase demand and prices... 

If everybody expects that the economy would improve and stay invested or invest more at corrections it could help stabilise or increase the stock prices...

The main problem is lower demand and price expectations and the selling due to higher interest rate expectations...

That people would start selling and it would lower profits/return on bonds and equities, people do not want to lose, only because people would book profits... 

It would take a little time for the interest rate to reach the threshold where it starts mattering... 

Lower price expectations would delay demand and increase supply and could help stabilise or rationalise the prices, in capital assets too... 

Though the problem arises when the pendulum swings to far or lower price expectations persist too long and result in a prolonged slowdown in demand...

Higher interest rate expectations and lower demand and high supply expectations and lower price expectations result in correction, then the central bank embark on stimulating demand and price expectations... 

Unknowingly the central banks are creating cycles, though if it commits low and stable interest rate and inflation it could help control too much volatility and cycles... 

Higher interest rate expectations would result in lower demand and price expectations and higher supply and lower interest rate expectations could result in higher demand and higher price expectations and lower supply...

The market real rates are still high, they are not negative... Lower real interest rate could increase spending given lower base effect and higher demand and price expectations...

If the price and growth expectations are bright it means more consumption and investment and demand and supply and growth...

Inflation and inflation expectations would help spending, people would not delay spending in expectation of lower prices or lower price expectations... 

Higher interest rate could further reinforce higher prices, because of higher borrowing cost... though, unanchored expectations could be a problem... 

The central banks must notify that that it would raise or hike interest rate if inflation touches 8% or so because after that that would negatively affect demand if real wages/incomes/profits do not increase...

INDIA’s a demand side story, inflation and inflation expectations tell us so and lower supply and investment, foreign and domestic, are problems, too, a strong/high domestic exchange rate or lower inflation/prices help increase demand and spending... 

INDIA has a current account deficit due to high imports and lower exports, lower inflation increase competitiveness and exports and lower inflation also increase real wages and domestic demand, interest rate and savings and investment... 

In case of taper in the US and foreign outflows the RBI may sell dollars which increases foreign exchange rate, that could help contain the outflows and increase inflows... 

High real wages, real interest rate and exchange rate and expectations could help increase demand, supply and spending and growth... 

Higher exchange rate expectations, domestic and foreign, could be self fulfilling... If people expect a strong rupee, foreign exchange inflows would increase which would further increase the foreign exchange rate... 

Same with real wage and interest rate expectations... Rational expectations could be self perpetuating...

Lower domestic inflation and a strong exchange rate mean competitive domestic economy and exports... It would increase both domestic demand and demand for exports.... through internal devaluation...

Food and employment guarantee are emergency measures which could be phased out as growth advances and could be again put in place during emergency...

If INDIA settles its imports and borrows in the Rupee its credit rating had been a lot better... Investments would be safe (-heaven), even china admits the advantages of a strong currency...

Third wave could not so depressing as the first and second, because of acceleration in vaccination...

The govt is proven insensitive on oil prices and the tax on it; it is high time the govt brings it in the purview of gst... 

The higher oil prices are directly attributed to the production cuts by the opec... Higher oil prices could also be self fulfilling through the exchange rate route... 

Higher oil prices could increase inflation and depreciation further lowering domestic and external exchange rate, and vice versa... 

In order to balance Saudi domestic fiscal deficit it is destabilising the importers... INDIA shall raise objection...

Low Base Last Year is Behind High Inflation and Growth...

High growth and inflation in the US and in INDIA are due to low inflation and growth base last year... According to the chain based index method... low inflation base would show high inflation relatively when it normalises or bounces back, same with the growth rate... it's because prices and growth fell last year compared to two years back when growth rate was high and this year's growth rate has a low base last year...

By the next year inflation would be lower given the high base this year, every year the base year changes according to the chain based method, low base last year shows higher inflation this year and high base last year shows low inflation this year... Time consistency of economic policies is a problem while framing polices... 

The Fed is (un)knowingly creating volatility in the markets by managing the money supply and interest rate and price or inflation expectations, though interest rate is also a price which is variable and not sticky, while price of borrowing determines all other prices... 

Otherthings remaining constant, if prices or inflation increase it cuts the value of money or debt and lower real interest rate which discourages savings and encourages spending, both investment and consumption... 

But, if the Fed increases interest rate, the above adjustment would not happen, because it would keep the real interest rate high or constant, if we assume the nominal interest rate would increase equal to inflation... 

Nonetheless, if the Fed commits a low and stable interest rate inflation or prices could help the above adjustment and reduce volatility... The Fed's policy should be consistent to increase its credibility...

Inflation reduces the real value of debt and increases spending... It cuts all the three real interest rate, real wages and real exchange rate which means more demand and spending... 

Under this scenario higher borrowing cost could disrupt supply side mechanism and employment and demand, too, further increasing prices, higher borrowing cost reinforces higher prices... 

If the central bank could commit stable interest rate, both consumption and investment spending may increase...To stabilise the current situation stability in policy is important...

The Fed shall first try to stabilise the money supply and interest rate and inflation for stable interest rate and inflation expectations which are important for spending decisions and achieve full employment...

The specter of tapering is quite a past, it has not happened and still uncertain given high unemployment in the US... Markets could rejoice...

It was a very good monetary policy as far as its effect on investors is concerned... 

It said that the timing of the tapering is still uncertain and it expects two rate hikes at the end of 2023 which should be taken with a big grain of salt... 

The US' growth outlook has been impressive and the monetary policy would remain accommodative unless success is made on the unemployment front... 

The communication was clear that for quite some time more it would continue with its accommodative stance...

It shall commit a stable monetary policy in order to stabilise expectations at the current level... Higher borrowing cost could reinforce lower supply and higher prices and expectations...

USD is the most bullish currency of the world; it is also considered a safe haven investment along with the US treasuries... The US stocks, too...

Subbarao (former RBI Guv) has said that the RBI prints money to conduct different operations... Unemployment and demand has gone down in the country, higher unemployment also means that production and supply have also gone down...

INDIA lacks a proper unemployment benefits or insurance system... This is a high time the govt reform the labour code by introducing a contingency programme for the unemployment due to lockdown... 

Like it has introduced crop insurance to handle uncertainty it may implement unemployment insurance... To fill the gap the govt may print money and provide capital for the unemployment insurance, because poor and unemployed need money for survival and subsistence... there is no doubt... as the unlock happens and supply improves...

Unemployment benefits or insurance in times of slowdown and crises would help survival and demand... and would also help flexible labour laws...

INDIA's health care infra is weak, the govt must buckle up for any probability of any third wave...The govt shall provide some compensation or unemployment benefit for subsistence, this long pending, even the flexible labour laws need, unemployment insurance...

Longer time horizon means more time for uncertainty... Analysts could make better prediction in the short run based on evidences... They must highlight the rational expectations that could prove to be self-fulfilling...

Expectations, Money and Spending...

 Expectations model has its root as old as Adam Smith when they were meant to discuss the gains from outcome of the human behavior. Human Psychology and actions explain why the subjects would be expected to behave under different situation in life and market under certain conditions and even under uncertain conditions. 

There are a number of variables used to predict human behavior and the outcome in the economic life. People speculate on human actions and outcomes if they are given money, they can increase/decrease/hold demand/supply. 

Holding demand/supply back based on expectations increase volatility in the prices which is an ideal situation to make money in the market and also to increase consumption, but you must have money to benefit from volatility. 

If people expect that prices may fall, they may speculate and hold demand which would reinforce the lower prices through lower demand and higher supply and if they expect that prices may increase they may hold supply which may reinforce higher prices through lower supply and higher demand…

Very few people understand statistics and percent... Economists must quote the nominal figures... During the last wave people took a contraction of -24% as the negative growth when the base year was 2019, -24% meant that growth in the base year was 7%... so the mathematics is 24% of 7% which is 1.6% lower or 7 minus 1.6 equals 5.4%... we had 5.4% growth in 2020...

Real rates are in the neg- zone, inflation adjusted rates, but demand is low which is dragging the supply lower even though there is unemployment and excess capacity... Any rate cut had been saved since demand is low... The banks are sitting on their own recovery, higher market rates has not led to credit growth, though the expected growth has increased, even after the revised expected growth...

The RBI takes notice of CPI which has a high weightage of food and fuel which are also most sensitive for inflation, better supply side management has contained food prices during the current regime... Nonetheless, policy mismanagement in case of fuel and its prices, higher tax and fuel exports to other countries even when oil prices rise have become Achilles heel for the Economy...

Unemployment rate is critical for deciding the output gap which is missing from the RBI model,,,

RBI claiming that there is bubble in the stocks as if it is not backed by the central bank liquidity and inflation and higher prices... Corporate profits and earnings back the upside... Lower bond yields and higher bond prices have kept lid on the broader stock market recovery... The stock market cap to GDP ratio is still not that stretched as back in recovery from 2008 crash...

Retail investors shall pick 8-10 index funds stocks and invest on significant dips (5-7%) on market corrections and sell on profits and do it repeatedly with the same stocks having decent cashflows... This is a short-term strategy and may work...

The market cap to GDP ratio is 100 which is still lower than over 150 observed in 2008 recovery...

While tackling covid, finance for keeping the people healthy shall not be a problem... We may easily monetise the debt and deficit... We also have a heavy foreign exchange reserves... Unprecedented problems need unprecedented solutions...

Health care spending has also gone up, demand for Medicines and Medical Service would kick on the multiplier...

Inflation and Rate Hike and Expectations in the US and Asset Prices...

It is really a big question, that what course do investors take in case of higher interest rate and inflation expectations which is good for margins and earnings, business have an excuse to raise prices? The Fed has said that inflation and expectations are only transitory which is supported by the evidence, lower prices have always followed inflation and higher prices due to the debase effect, when price increase too much, also because the central bank would try to stabilise the prices though supply would also increase due to lower price expectations... Long-term Investors should remain invested as it would pass soon with correction in the short-run, short run investors could buy at significant dips, as it could increase compounding... Any correction would be short lived and would be followed by a better the long-run story... Higher inflation and interest rate expectations could increase selling and supply thereby lowering the price expectations and more buying by the investors later... Any correction is an oppourtunity to lower average cost...

Lower money supply and higher interest rate expectations could lower demand and price expectations which could also increase supply and lower the price-level or inflation... At lower valuations the assets could again become attractive to buy again at lower prices...Unconsciously investors actions and expectations affect the valuations... If they think that prices would fall and hold demand and increases supply price would fall and vice versa... Any intervention by the central bank would increase volatility and reinforces the prices through the borrowing cost... Lower borrowing cost would further reinforce lower price and vice versa... Both, lower prices and higher price expectations increase demand and lower supply... Lower prices increase demand and higher price expectations also increase demand and lower supply... While higher prices and lower price expectations increase supply and lower demand... The Fed has to choose that it wants to increase demand by lowering prices or it wants to increase demand by increasing price expectations by adjusting interest rate and expectations... Higher interest rate would lower demand and price and expectations, supply or selling would increase... Lower interest rate would increase demand and prices and expectations, supply would go down... The objective is to stabilise the interest rate and prices at full employment...

Investors should understand that higher inflation has been due to the base effect, our base case had been too low, last year inflation struck too low due to low demand, that inflation is relatively high compared to the last year because last year it was too low... But in nominal terms the difference might not be that large if inflation two years back was the base when there was no covid... The Fed is repeatedly reiterating that unemployment is still high and and there is excess capacity which would increase labor productivity and supply which would stabilise the price-level, upto full employment more supply would help contain inflation... Clearly this is not the time to sell assets because the Fed is still accommodative in the Monetary Policy commentary and it would take time, at least for the next quarter... In the near term there is no danger of any significant prices correction and loss... 

Otherthings remaining constant, current stock price is a function of the buy and sell orders... If buy orders increase current price would increase and if they fall current price would fall and if sell orders increase price would fall and if they fall the stock price would increase... People should buy at current market price and sell at current market price... people's expectations about stock prices increase volatility... if the majority expect lower stock price and set a lower limit price to buy, the stock price would fall and if they expect that price would increase they increase demand and hold supply that increases the stock price... To gain and let everybody gain demand should increase and supply should go down... People may actively manage demand and supply in order to gain; higher stock price would also help promoters...

Long-run is riskier than the short-run, therefore we get higher premium, because the space increases, more time means more uncertainty... The agents may increase supply due to higher interest rate expectations and lower demand and price expectations which could help contain the value... The higher PE ratio means that the stock price is backed by the companies’ earnings and there is no bluff in demand and supply or irrational exuberance... The agents would gain if they buy low and sell high... They could make more money and save more if they buy a product or stock or inventory if its price is low and sell when the prices are high...

The central bank must alert the economy in advance on rate hikes and cuts before the actuals... Higher interest rate expectations could lower demand and price expectations and increase supply and contain the price level and lower interest rate expectations could increase demand and price expectations and lower supply and contain the price level... which would help stabilise interest rate and expectations...

In the last wave we observed that the inflation increased during the lockdown which saw a rationalisation after the unlock... Higher prices/inflation too increased supply and lowered demand which contained the prices... Higher prices increase margin and the excuse to increase prices which increase earnings and the stock prices... We also observed that the stock prices of the large market cap recovered faster than the broader economy that is largely unorganised... Underneath the lockdown the trade continued at higher margins...

Interest Rate and Price Expectations and Spending...

Our models have an underlying flaw that they fail to measure uncertainty and stochastic and exogenous shocks which have resulted in the forecasting errors... 

Rational expectations modeling is also erroneous since we can’t expect everybody to understand the price and demand and supply dynamics in the market... 

The assumption that individuals are rational and have full knowledge is not right and above that the uncertainty and stochastic errors make the modeling redundant and require forward and clear guidance to help manage investments... 

It is the duty of the central bank to educate investors on its actions loud and clear with certainty which would help lower loss... 

The forward guidance may save rate cuts and hikes since people would themselves control investment and spending if inflation crosses 2.5-3% or so... 

Moreover they would increase demand and spending when prices are low and increase supply when prices are high which would help stabilise the price level, too... 

If everybody would follow the central bank we could expect individual be rational and the expectations would be self full-filling...

The inflation and expectations affect the interest rate and expectations and the interest rate and expectations also affect the inflation and expectations or in short both reinforce each other which increase volatility. 

The central bank manages the inflation and expectations by manipulating the interest rate when it shall adjust interest rate expectations in order to carve inflation expectations and stimulate spending and growth. 

The central banks use interest rate to affect price level or inflation/disinflation/deflation expectations to increase spending, nonetheless they increase volatility by adjusting the borrowing cost or interest rate, lower borrowing cost reinforce lower prices and vice versa. 

Though, the real interest rate remains same while adjusting interest rate since nominal interest rate equals real interest rate plus inflation it barely affects spending, but blocks correction through lower real interest rate and higher supply, moreover higher real interest rate also lower demand. 

When the central banks could utilize the interest rate expectations to affect price expectations and spending they vaguely use interest rate to affect prices and demand/supply and spending. 

During high inflation higher interest rate expectations could lower demand and price expectations and increase supply which could control prices whereas during low inflation lower interest rate expectations could increase demand and price expectations and also lower supply.

The central bank must alert the economy in advance on rate hikes and cuts before the actuals... 

Higher interest rate expectations could lower demand and price expectations and increase supply and contain the price level and lower interest rate expectations could increase demand and price expectations and lower supply and contain the price level... which would help stabilise interest rate and expectations...

Productivity and Competitiveness...

 The division of labor according to skills and specialisation directly affect the productivity and competitiveness of the economy, it increases both the demand and supply by affecting the price-level, higher innovation and skills and productivity or supply and lower prices also increase competitiveness and demand and prices. 

Thereby prices move between high supply and lower prices and high demand and high prices due to changes in productivity and competitiveness. This is true for the global economy, if every country produces goods and services they specialise the division of labour would increase the total product and income by increasing the productivity (Ricardo). 

Higher productivity would also increase and help balance of share of the capitalist and labour which means higher demand and supply and growth, though the location of demand and supply and the transport cost are also important for the prices and if the gains from productivity are lower than loss due to transport cost trade could become unviable (Krugman).

While policy-making we are concerned with prices which are key for productivity and competitiveness like interest rate, wages and exchange rate or inflation adjusted or real interest rate, wages and exchange rate. By adjusting them productivity and competitiveness are managed which again affect the prices expectations... 

For instance, during inflation real interest rate, wages and exchange rate go down which increases productivity and competitiveness which further increase demand and prices and expectations and also reduce supply and when there is disinflation and deflation real interest rate, wages and exchange rate go up and it reduces productivity and competitiveness which could further reduce demand and prices and expectations and also increase supply, therefore result in volatility... 

The central banks actions could further reinforce productivity and competitiveness and prices and expectations, a higher borrowing cost could further increase cost and prices and a lower borrowing cost could further lower cost and prices and increase volatility... It is a dynamic equilibrium for prices move between high demand/low supply and high supply/low demand and people speculate on both high prices and low prices because it is profitable to invest or demand on low prices and increase supply when the prices are high... 

Prices expectations are self fulfilling, if people speculate or expect lower prices they hold demand and increase supply which reinforce lower prices and volatility and vice versa...

How INDIAN companies would compete with foreign peers who could now borrow at as little as zero real interest rate..? Cutting nominal reporates could bring market rates low near to real rates in the developed countries... More savings in the g-secs could be a good alternative to simple savings deposits rate... RBI has liberalised rules for investing in the govt bonds...

Inflation in INDIA is good and well within the target band, when the US is trying to increase inflation, INDIA has no dearth of demand and stable prices... Some inflation is good for demand and spending...

The imposition of the retaliatory tariff by the US means that it wants INDIA to reduce tariffs on the US' products is a sign that it wants trade liberlisation between the two countries and a lower tariff on the US product would mean a lower tariff on INDIA product... Trade liberliastion between the two could help lower prices of imports and inflation for the consumers in both the countries and increase competitiveness and demand and exports and higher real wages and income would also increase domestic demand...

If the investors just follow safe heaven companies like bse30 or nifty50, mainly large caps, and buy on the significant correction they could earn even in the short-run... It is more profitable to buy low and sell high and doing it repeatedly one could earn even higher in 30 years... more compounding...

The second wave is good since it would push the govt and people to get vaccinated soon due to the scare of the virus... They would not take the situation lightly...

The infected should be inoculated first to stop the spread... The vaccine has been conducted on 8 crore people but there are still 1.2 active cases who must be inoculated on the basis of priority that could help contain the contagion... Inoculate the infected first...

The RBI may print currency to cover the cost of free vaccine inoculation to 1.3 billion people at the earliest... This would widely boost productivity across the economy, better than any spending to revive growth...

Uncertainty and Inequality and Growth...

 Economists have developed models including variables that could affect a particular outcome, but have failed to include the uncertainty which could change the results… The Black Swan, the most improbable or uncertain events and the Gray Rhino, the most probable or certain events that could affect the outcome of the dependent variable… The objective or goal of a model is to identify, though the Black Swan events are difficult to gauge, and the Gray Rhino events to include them in the models to predict the effects on the growth… 

The Cov-19 is an example of the Black Swan event which no one could foresee so that a preemptive or proactive action could be engineered which pushed the economies under slow economic activity and high unemployment and low productivity, it was a hit on the both demand and supply and ultimately on growth, globally. In the developed economies which have a good productivity and supply levels but low demand saw a plunge in the inflation or price level, but emerging economies that have low unemployment and productivity and supply, but high demand witnessed surge in inflation… 

Nonetheless, post active action and monetary stimulus and vaccination helped only a slow recovery from the pandemic and slowdown. The developed countries provided a bigger stimulus to increase demand and zero interest rates to incite recovery where demand side was a problem than the weak supply side and high demand in the emerging markets like INDIA where the stimulus have staged with a delay.  The stimulus in the developed countries has increased demand and price expectations in the economy and in the emerging markets it has increased supply and lower price expectations. 

In the US low inflation is a problem for wagers and for the business also their income is not going up and in the emerging economies like INDIA high inflation is a problem, nevertheless the objective is to keep prices stable – interest rate, wages and exchange rate - since lower price expectations during slowdown delay demand and reinforce lower prices and higher price expectations during high growth delay supply and reinforce higher prices. Too much high demand and low supply increases nominal prices or inflation which increase spending, and too much high supply and low demand lower real prices or inflation which could increase spending, too.

Both, lower prices and higher prices are good, but within limits, because lower prices increase demand when supply is high to stabilise prices and achieve full-employment and higher price increase supply when demand is high for the price stability and full employment. In the West we have high supply and low demand and in the emerging world we have high demand and low supply which is needed to balance to stabilise the inflation or price level. Instead of bringing supply down to demand the West may increase demand on par with supply to increase growth and instead of bringing demand down to supply the emerging nations may increase supply upto demand to keep prices stable and gain full employment and growth. Globally, too, the higher supply must keep flowing from the West to the emerging world to keep stability through higher trade and reduce inequality.

The objective is to keep demand and supply and prices stable at full employment – maintaining stable and predictable prices and growth regime for the interest rate, wages and exchange rate, actually real interest rate, real wages and exchange rate…

INDIA needs freedom from the politics...

 It is true that INDIA needs freedom from the politics of appeasement and polarisation and needs a better alternative for growth and development than the current regime based on free markets which started back in 1991... An economy which is productive and free from inflation and unemployment...

Economists repeatedly say that fiscal spending which increases productivity and competitiveness lowers cost and prices and increase demand, exports, too, is quite welcome... Some claim that higher productivity is good but lower prices are bad therefore we need higher prices... Nonetheless, lower prices are good, but not lower price expectations because it delays demand and increase supply and volatility and higher prices are not good but higher price expectations are good because it increases demand but delays supply and increase volatility, but within limits... If prices remain fixed there is less incentive for speculation and profits and investment...

To give clear forward guidance the RBI may remain neutral between 2-6% and restrictive above 6% and accommodative below 2%, it may clear... RBI may avoid adjustment between 2-6% to provide financial stability... A flexible inflation targeting provides stability and may help maintain the inflation and interest rate stable... The band means that the inflation may move between 2-6% and the monetary policy may remain neutral... 

The monetary policy may remain neutral since adjustment in the interest rate may reinforce prices and increase volatility... High inflation could force the RBI to hike which may lower employment and productivity and further reinforce or increase prices and similarly if inflation goes down lower borrowing cost could further reinforce lower prices and increase employment and productivity which would also mean lower prices...

The recent outflows expectations are not due to higher bond yields but lower bond prices due to sell off that followed the $1.9 trillion stimulus and higher bond yield expectations and higher government borrowing... Investors seek lower asset valuations which have higher valuations expectations though safe heaven image is also a factor for driving outflows... Investors’ actions drive prices up and down themselves and also reinforce them through expectations... If prices fall and they expect that they would go up and they invest more and more money and demand and investment and lower supply drive prices higher and if prices increase they expect that prices would fall they hold demand and investment and increase supply that further lowers prices... Nonetheless, under adaptive expectations model lower prices and expectations mean further lower prices and vice versa... If investors expect that prices would fall they would fall and again versa... If prices fall and the same expectations investor increase supply and lower demand which further lower prices and vice versa... Notwithstanding, under both models above expectations reinforce prices and are self-fulfilling...

Lower prices and valuations in INDIA could again increase foreign exchange inflows... Big speculators have a tendency to bid the prices of something up and down for their own purposes... big fish having a large market share to manage prices up and down for gains... At some lower valuations INDIAN market could again become attractive...

More dollar inflows could make the rupee stronger, which could help lower imported inflation and increase competitiveness and productivity... Lower inflation could increase domestic demand by increasing real wages and demand for exports by increasing competitiveness... Higher supply due to low interest rate would reinforce low prices... Other things remaining constant, increase in the value of money would also increase demand due to lower prices or inflation...

The Fed is trying to increase inflation and interest rate expectations to sustain spending which seems not to be working, though if the Fed commits low and stable inflation at 2% and increase money supply and employment and nominal incomes/profits and real income/profits and expectations that might work too... Notwithstanding, high prices could increase interest rate expectations and lower spending and lower prices and expectations...

The Fed has already wrongly anticipated inflation on the basis of full employment a few times and tried to hike rates, but oil price has been a key factor in the models for inflation and inflation expectations for the US which is absent after the shale revolution... Low borrowing cost has further helped improve the supply side and contained other prices... Though real wages have also been cut through inflation which has also helped lower cost, but reduced demand which is also responsible for lower prices... The Fed has missed the inflation target since the last decade, the question is how it would be different this time, inflation so far has not materialised which could help lower bond yields expectations... Investors themselves unconsciously affect asset prices through expectations, if they expect lower prices they sell which actually lower prices and if they expect higher prices they buy which actually increase prices...

When investment demand is down asset valuations are bound to be low... Demonetisation hit the already slow recovery in the growth and pushed the economy back to the square one... And, the economy is still in the recovery mode from the effects of demon...

It could be a bad time to sell the state assets since demand and prices are low hit by demonetisation and cov19... The economy is going through correction which is pushing the govt to sell the assets cheap... and at loss...

Even hundred $1 billion companies are still insufficient to cope with unemployment and inflation in 130 billion people economy and mainly young... The economy is running on steroids like MGNREGS and the food security even during the normal times marred by corruption... We atleast need a thousand $100 billion companies to create jobs for 80 million people joining the workforce every year...

Instead of providing subsidy on fuels, since we are dependent on imports to make the oil companies, we are weak in that sector, more productive the govt is increasing taxes... we are losing competitiveness bcoz of higher transport cost and lower real incomes...

Prices and Expectations and Cartels/Quota...

 Expectations or forward guidance about future inflation and unemployment and interest rate to shape and take investment decisions wisely and avoid sudden change in course in the face uncertainty and the then economic policy and the resulting effect on investment is what is expected from the central bank which is described in the monetary policy... Todays central banks are like a big rating agency run by the govt jointly to guide investors to take the right decisions...

Investment reinforces or crowd in investment... More investment would lower yields due to higher money supply and increase bond price expectations which means more investment... especially in the short term which is more predictable than the long run... Like higher fiscal deficit has been well received by the investors as that is likely to crowd in more investment by the private sector...

The govt is increasing layout on a lot of issues... The govt has plans to increase spending through sale of shares for the private investor... It would have more money for productive purposes... The effect on the total economy would be minuscule...

Spending on infra means that wages would go to the unskilled vulnerable labourers... Moreover, it increases productivity and more revenue from tolls means more investment and more wages...

The govt may set quota for every state to include farmers from all states in the FCI purchases...

The govt should implement the quota system so that dumping by states and lower prices do not happen... Oversupply depress the prices, supply must match demand... It is important to to save the livelihoods of small and marginal farmers which do not produce in high scale... Contract farming could help the mismatch in demand and supply... 

Like opec has quota for the member countries, to match demand and supply and control prices, the farmers must produce in accordance to the demand... The govt has subsidised the agriculture even though farmers plight are unavoidable especially the small farmers... The Farmers Unions must set prices according to the cost of production... Farmers are businessmen, they must decide prices on their own based on demand and supply...

To gain the Kisan Unions themselves follow the aggregator of the aggregators model, Unions must invest in this model, themselves...

Investors shall set the stock prices at the high price range after buying... To gain in the short run... If all would set same sell high price all would gain...

Money from investors is likely to reduce yields and increase prices in the short term... Bond demand would increase bond prices... Fiscal deficit to increase productivity and supply would contain yield and prices... Lower yields would reinforce supply from the private players and prices...

If the rupee becomes strong, to 68-69, if the RBI sells dollars, oil prices could become 7-10% cheaper, moreover it would also increase foreign exchange inflows to recoup the dollar slowly... It would also lower imported inflation and could make the economy competitive and more productive... Lower inflation and higher domestic exchange rate would also increase exports...

The RBI may sell dollars to contain fuel prices... and, the govt may try to settle oil contracts in rupees... moreover, the govt could ink a long run contract with the US to import either biodiesel or oil... which is now a net exporter of oil... EVs have changed the dynamics in the oil market... Storing too much oil or investment in it is a too much risky bet... The oil prices have increased on the back of production cuts...

Oil from the US and Saudi, lowest cost, in opec are in direct competition and conflict to increase market share, even china imported alot of oil from the US last years and a big importer of crude oil from Saudi... Nevertheless, china is the new US, a big guzzler of oil... Low oil demand and cov19 benefitted china as far as oil prices are concerned...

The evidence from the West suggest that as money supply has expanded the price level has remained muted even though the FDs continued to be high, low borrowing cost has increased the productivity and productivity of capital and supply with innovation... The interest rate in INDIA would converge to the developed countries like the US and Japan...

Rational Expectations and Prices and Spending...

 Complete price stability is a myth, the economy moves between high and lows based on the demand and supply or between high and low demand and high and low supply... Low prices and full employment mean there would be higher demand and price expectations and higher prices and full employment mean there would be higher supply and lower price expectations... 

Unemployment and lower demand/high supply and lower prices mean slowdown and unemployment and high demand /low supply and higher prices mean high growth... The economy moves between high prices and high growth and low prices and low growth... 

Base effect ie lower prices and growth means there would be higher demand and price and growth expectations and the same with debase effect ie there would be a correction or lower demand and prices and growth expectations... which seem rational expectations... The economy moves between high demand and high supply and between higher spending and lower spending... 

Lower prices mean there would be more spending and higher prices mean less spending... Both consumption and investment decisions depend upon price and price expectations... Lower prices mean there would be more spending and higher prices mean there would be less spending ahead even if there is full employment and fixed income... 

Intervention could reinforce volatility, for example, lower borrowing cost could reinforce lower prices and higher borrowing cost higher prices... Therefore, we need stability in the borrowing cost...

Inflation would increase after full employment...Unemployment and lower borrowing cost would mean that there is space for expansion means higher demand and supply... When both would increase equally prices may remain stable, though if demand is higher prices may increase, but not that much and in supply case prices may go down, the market move between excess demand and supply...

The govt may educate the masses how to take advantage of price expectations and corrections in the G&S/inventories market... If they expect 1-2% profit/day they may increase investment demand as this could double investment in 100 days, for this they must wait for price corrections and increase supply when prices increase...

The govt and RBI must instill business acumen in the public and how to handle inflation and make profits... The RBI has allowed 2-6% inflation which could help grow money returns if investment is made wisely, at corrections... 

Like the stock market, the broader economy and the inventories market could also be made profitable where prices could move from 2% to 6% and from 6% to 2% it could be a buying oppourtunity and increase supply when the price increases... If people buy when prices are low and sell when prices are high it would also help stabilise the economy...

Disinvestment is often regarded as selling family silver, though the meaning in current perspective is to raise capital in the market for more investment... Today only a part of the promoters’ stake or shares are sold to the investors... Disinvestment in today’s context is a lot different than used to be in the past... It means more money would be raised through sale of the companies’ shares for investment...

This time there is a change in the commentary that Das has expressed concerns of inflation expectations instead of lower inflation due to low demand... Inflation expectations mean that he sees revival in demand and growth which could further increase demand and spending... The central bank has projected a growth rate of 10.5% in 2021-22...

Fixed interest rate income assets does not benefit from volatility... For this investment in the short run gov secs is rewarding since they capture the loss in real interest rate due to inflation when the central banks increase the nominal interest rate to control inflation and restore the value of money, in the short run... Instead of bank deposits savers may park their money in g-secs and benefit from volatility...

It is quite a coincidence that INDIA's foreign exchange also stands $500 billion which is a major reserve with the central bank lying unused and idle... if invested in the economy could prove to be a major source of investment and higher productivity and demand and growth... If sold in the market vis-a-vis Rupee could make it strong which could attract inflows... Investment reinforces Investment ie multiplier...

The ratings are used to mobilise savings and investments on a very large basis which include FIIs, FPIs, both, debt and stocks, every country now want more foreign exchange for maintaining a stable exchange rate regime... Rating Agencies are at investors’ service... 

But, the 2008 Crisis exposed the vulnerability of the investment banks even after good ratings... INDIA has been the fastest growing major economy with stable inflation, notwithstanding its rating has been the lowest investment grade...

Prices and Growth (Rate)....

 Growth comes from either accelerator and or multiplier, when consumption increases first and, later, investment and more employment and demand and further consumption it is the accelerator and when investment increases and it further increases consumption and further investment... 

Investment reinforces or induces investment ie multiplier and consumption reinforces or induces consumption ie accelerator... 

Lower prices increase demand, other things remain constant, lower prices increase the value of money and consumption and demand and price expectations and higher prices decrease the value of money and increase and investment and supply and price expectations... 

Lower price expectations again reinforce lower prices and vice versa... Because what people expect too much becomes a reality if the expectations are rational... a rational expectation is a common belief... about prices and consumption and investment or demand and supply...

If the rational expectation is that price would fall they would hold spending and increase supply which could reinforce lower prices and it they expect higher prices they would increase demand and spending and hold supply which could further increase prices...

In the West productivity has increased, especially labour, but real wages has been as low as back in 1970s, that has put a lid on demand, though supply has increased... Higher money supply and low borrowing cost in the past decades have kept inflation low...

 Depreciation, lower wages, interest rate and exchange rate have increased demand of exports at the cost of domestic demand, though supply side and imports have strengthened that shows weak Phillips curve relationship between inflation and unemployment ie inflation would increase after full employment... 

Nevertheless, lower wages and interest rate have increased the productivity of labour and capital and supply.., but not their product, wages and interest rate which have depressed demand and increased supply and is reinforcing lower consumption and investment and lower prices... Higher real wages and interest rate expectations could increase spending, both consumption and investment, and prices and growth... 

Typically, low growth is marked by low prices and vice versa... The objective is price stability at full employment and growth... If prices at the full employment are stable, neither inflation nor deflation we must cheer the stability... In the West supply side has improved alot tokeep prices stable at full employment... Stability would help to keep up investment…

Lower inflation or a strong domestic exchange rate and a strong foreign exchange rate or appreciation lower import cost/prices could also increase export competitiveness... Lower inflation means a strong currency and cheaper exports, too...

Today money's value is tied to nothing and the central bank prints currency while maintaining inflation targets; it is not tied to gold or anything... These are investment goods with a value in currency terms or exchange value, these bitcoins and the major Tesla viewed by investors as profitable ventures, there is nothing like bubbles if it is backed by earnings growth... if inflation is low and stable... Many central banks have allowed bitcoin exchange and in the stock market...

INDIA direct taxes are highest among peers... To increase real wages and incomes the GOI may reduce incomes tax that would also increase competitiveness and demand, when there is limited transmission of lower cost to prices, like lower interest rate transmission by banks and higher prices in the real estate...

Budget may try to build dams to stop floods (and generate electricity, too) and improve irrigation facilities to control seasonal food inflation and help stabilise the interest rate regime which could increase productivity and competitiveness and demand...

Farming is the oldest form business... Most of the growth models in economics are based on agriculture... By selling lower to achieve economies of scale big farmers are hurting small and marginal farmers, it is the basic strategy in any market to gain the market share, lower prices and larger pie of the market... Look at oil producing countries... 

Indeed big subsidies have lowered cost and the farmers are selling even lower than the actual cost... especially the small ones...

Due diligence must be given to the fact that the growth has not been negative; it is negative only when compared to the last quarter or last year... For example, if the last quarter or year growth rate was 7%, a - 24% lower growth rate would be -24%/7% equals 3.4%... 

The growth rate is positive but lower compared to the last quarter and year... Higher inflation expectations from a lower base would help maintain spending or due to lower prices which could reinforce demand and prices... Every paisa spent anywhere would further increase income and demand and spending...

GDP Constant Prices in India increased to 33141.67 INR Billion in the third quarter of 2020 from 26895.56 INR Billion in the second quarter of 2020. Source: Ministry of Statistics and Programme Implementation..

Recovery from the Pandemic and the Farmers share in value...

The RBI has loads of dollars, foreign exchange reserve which could be used to capitalise banks... Strong rupee could increase foreign capital inflows and cheaper imports and domestic inflation also due to lower oil prices... Lower prices increase competitiveness and demand in the economy and exports... which could help maintain stable interest rate...   

 

During covid it is important to maintain some inflation to keep up demand and spending and help increase supply...

 

Farmers need share in value addition at every stage from raw materials to intermediate to finished product and in bidding and auction too, till it reaches the consumer... It would be profitable that Famers decide prices on the basis of cost...

 

Why the government decides the prices of grains...? The Farmers must be provided the capacity to hold and slowly sell on price rises... Small and marginal Farmers should be benefited by the market system and be able to sell directly to the urban retailers at very low cost...

 

The FDI in multi brand retail was allowed only to increase procurement by the large companies directly with mandated local sourcing... The transport cost must be low...

 

Short run is more predictable than the counter view that long run is more certain therefore the long run premium is higher than the short run, which is wrong... We could tell what could happen in a month or three on the basis of data, but difficult to tell what could happen in the next 5 or 10 years...

 

 Stock Market investors shall give little importance to day to day news and stick to the longrun story and invest more at corrections... Analysts say that investors need to follow the stock specific cycle and not the market cycle which could affect the stock market cycle too, especially the index stocks...

 

People wrongly believe that they shall buy when they expect that the market would go up, but contrary to it when they buy the market increases, though if they hold and wait for lower prices it would increase supply and lower prices... Investors shall try to gauge the majority rational expectations... which might turn a reality... Rational expectations are very important for investment decisions...

 

Correction means more investment... Lower prices increase demand and price expectations...  Guv Das view is for short term investors, there could be an imminent correction... From a 2 to 5 year perspective the outlook is good... The RBI too lower interest rate to increase demand...

 

The stock market is always suspected for bubble coz it runs on liquidity by the central bank, higher liquidity means higher stock price valuations therefore the market has responded sharply V shaped recoup with the liquidity support ahead of the broader economy and the RBI still in accommodative mode... Nonetheless, the market cap to gdp ratio is low compared the revival saw after the 2008 crisis...

 

Higher inflation due to supplyside disruption has helped increase margins and earnings of the companies... Higher inflation means higher margins and earnings... which have also pushed the stock market high... As long as the central bank maintains an accommodative stance the party at the Dalal Street might continue...

 

Lower prices in the stock market increased investment demand (after the Mar correction) while higher prices in the broader economy due to supply disruption and lockdown which hit the consumers demand, too... Higher unemployment has again hit the consumption story... Unless prices in the broader economy correct a little bit due to lower cost and higher productivity and supply and higher income, consumption demand may remain low...

 

Since more people than a million are adding to the labourforce every month then how can production remain low with more consumption and investment demand and spending and stable and accommodative monetary policy... 2021-22 would be more prosperous than 2020-21....

 

Modiji's attempts to curb corruption have been failed manytimes like to reduce back money in the economy that has skewed the inequality through demonetisation, but it turned out to be a bigger scandal by banks... Without sweeping reforms to cut down on corruption all would go down the drain which would further increase inequality and abuse of power and position...

 

Economists may give hope to the investors to keep investing in the economy that might help... The stock market investors and even FPIs are an important source of growth and must be saved; now not only rich, but many more people invest in the stocks...

 

Recently, BofA said that credit growth is bottoming out but growth could remain weak… Nonetheless, if the credit growth is bottoming out the growth would follow... If business or investors buy or demand or spend when prices and cost are low and sell or supply when prices are high they would gain and that would also help achieve stable prices and full employment...