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...
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