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...
No comments:
Post a Comment