Eagerly Waiting to Read Robert Shiller's "Finance and the Good Society"

"Finance and the Good Society" authored by eminent finance academic Robert J.Shiller is out in the US. I am really eager to read this book and hope to grab a copy soon. As most of us know, Shiller is no ordinary finance don though he has been associated with the prestigious Yale University for long. He has been one of the most influential thinkers in the area of finance and perhaps one of the few who foresaw the housing bubble in the US that led to the current global crisis. Of course, his book "Irrational Exuberance" was seriously influential. It is difficult to comment on a new book without reading it. But I am reproducing two links one of which is an interview that I enjoyed reading and another is an excellent review. Clearly, in the new book Shiller is trying to laydown a guidemap and an agenda for the future and trying to reconcile some of the contradictions in capitalism that seem to have surfaced in the recent past. In many ways, we probably have another book like Raghuram Rajan's fabulous 2010 "Fault Lines" that has wonderfully helped us understand the real issues that led to the global crisis and what needs to be done ahead. Incidentally, Rajan was another one of the very few who saw the global crisis coming. Shiller  has surprised many in his new book with his stance on some popular issues such as high pay of finance executives that seem to have been caught the imagination of media and public in the US. I am not surprised though. In 2010, I had the privilege of interviewing  him (http://119.82.71.56/article.aspx?266301). Those 45 minutes must surely have been one of the best in my two decade journalistic career. During the interview the wonderfully mild-mannered scholar debunked one myth after the other (including the myth of India getting to have the so-called "demographic dividend"--he told me it was China which was getting it as it had people in the productive age group of around 35 years getting into the workforce whereas India had the demographic bulge around age 25). When I invited him to visit India, he told me how he had just attended a wedding of close family member who got married to an Indian girl. I am not sure whether I will ever get to meet Shiller but hopefully I will get to read his book soon. In the meanwhile, links like the one below will help.       

http://money.cnn.com/2012/04/10/pf/investing-Shiller.moneymag/index.htm

http://chronicle.com/article/Robert-Shillers-Mission-to/131456/

A Peep Into the Future Through My Weekly Home-Buys Basket

Is it reading too much in small things and being an alarmist or is it an indicator of things to come? Like every weekend, I went buying vegetables and groceries earlier in the day today. I didn't return home too thrilled at how light my wallet had become. Vegetable prices and food inflation in general are up once again and big time. We got the government's higher inflation figures late last week. But I didn't realise just how bad things had become. Vegetable prices have practically doubled in Delhi and the National Capital Region ijn the past one month. Worse, the quality of supply is dreadful. Things are probably as bad as middle of last year. While oine can blame local and seasonal factors for rise in vegetable prices which may not be the case here but what about groceries? Their prices, especially branded ones, are also shooting up. For example,. the branded rice bag that my family uses is now costing 10 per cent more since the last time I bought it 45 days back. There seems to be price increases on this front too every 45-60 days. Smart FMCG companies are reducing amount and weights in their packs quietly. And when the Prime Minister tells you that the government needs to raise fuel prices, you can be quite sure that this madness will continue for long. The effect of the Budget 2012's increase in service tax and excise will not have percolated to the system still. It might take a month or 45 more days. So, where does this leave the country's and individuals' finances? I, for one, feel that chances of any further cut in interest rates during 2012 is diminishing by the day. We can expect the economic sentiments to continue to weaken with impact being felt both on the rupee, making imports costlier. Like last year, in high inflation times, people will continue to take refuge of  gold and real estate so that they can preserve the value of invested rupees. Of course, people will end up saving less thanks to high inflation and moderate or no pay hikes. What about stock markets? I suspect that we will need to look for goodies like more currency pumping by central banks abroad. Well, I guess its time to change the topic. "Avengers"  anyone? 

Uncomfortable Truth?

Another day and yet another faux pas. The government seems to be having little trouble saying things and backtracking later. The latest in the series is the government's economic Advisor Dr Kaushik Basu saying that one can expect Big Bang Reforms only after elections in 2014 as the new government will have the requisite majority in the Parliament. Though embarassing, Basu was speaking the truth. But honesty and politics perhaps don't go hand in hand, do they? Once the principal opposition party BJP latched on to the statement, the government said that the economic advisor was "misquoted". How's that for an original excuse? If you take  a close look at some of the economic reform legislation pending, be it Direct Taxes Code or the Goods and Services Tax (GST) or the pensions or insurance bills, one will realise why Basu was speaking the truth. They don't seem anywhere near the horizon when it comes to being passed by the Parliament.  We will be lucky if we see DTC and GST through by 2014. Moreover, the present government isn't getting the support it needs from its allies to pass these legislations. So, why the denial? Will it help delude people? You bet it won't.

Rogoff's Bleak Forecast for the Euro

We have all seen recently what the current Eurozone mess can do to our stockmarkets and to our economy. Therefore, it is in India's interest that Eurozone mess never gets out of control, especially this year when the government's finances are already stretched and it doesn't have the wherewithal for a bailout. Then there is the worrisome current account deficit problem arising from the weakened growth of exports thanks to less-than-satisfactory growth of the global economy and rise in the value of our imports, many of which, we can't do without, chiefly crude oil and edibile oils. To top it RBI has the problem of keeping inflation under check which is still at a fairly high level. In this backdrop, it is further chastening to read eminent economist Kenneth Rogoff's recent article on the euro which has been reproduced in some places http://www.project-syndicate.org/commentary/a-centerless-euro-cannot-hold. Now Rogoff is no ordinary dude. He is famous for having studied recessions and downturns over centuries in his book with his ex-World Banker co-author Carmen Reinhart called  "This Time is Different: Eight Centuries of Financial Folly". He discusses arguments from the theories of two Nobel prize winners James Meade and Robert Mundell to paint a fairly grim future for the euro. Why is an article like this important? Because  you just have to peep into business papers and TV channels to see the plethora of so-called experts who are giving advice and predictions based on the assumption that things will get back to the same old ways of pre-2008. But will they? Has the global economy changed irreversibly by the global economic crisis? Food for thought.

High Cost of Drug Discovery and Stock Prices

With not too many really interesting things to write about, I thought I will just put up this post about an  interesting article that I read last week. The article appeared in Forbes http://www.forbes.com/sites/matthewherper/2012/02/10/the-truly-staggering-cost-of-inventing-new-drugs/ that talks about the actual cost developing a new drug. Like others, I also used to believe that the average costs of developing a new drug is around $4 billion but the author rightly argues that we need to divide the total R&D spend by the number of drugs approved. This means we take into account the failure of drugs to make it to the market. The results of the exercise for global pharma giants are dramatic. They are spending far more money than what is popularly believed. We all know the original drug discovery needs deep pockets but when you look at keep these figures you realise just how deep the pockets need to be. Now, what are the implications for Indian pharma firms? Clearly, it is a tall ask for Indian companies to make a transition to be part of original drug discovery club. No wonder not too many Indian firms are now talking about these ambitions unlike even what it was some years back. An important aspect here is that the stock market doesn't really reward drug discovery and will look at it as an expense unless you can quickly monetise it in the near future (that's 6-9 months for you). Of course, they can be part of certain segments of the drug discovery process like discovery of the molecule or trials. So, the next time a pharma company talks of drug discovery we know the context in which those statements can be evaluated.     

Markets' Weakness Ahead?

Talking about the future direction of stock markets is difficult yet tempting. At a radio show on Thursday, April 5 where I was invited as an expert, I was asked the same question by the host. It is quite clear that when markets open on Monday, April 9, 2012, a few things will be at play. The bad news from Europe will be working on investors' minds, especially foreign ones. Bar Germany, the news from Europe is  not great. It is quite clear that what the continent is going through is not "shallow recession" as some had suspected but something deeper. Spain's debt markets don't really believe that it's government can pull things off and maybe that's why the bond yields increased. It seems Portugal, one of the earliest, in the list of troubled European economies will need another cash transfusion later this year. Incidents like public suicides in Greece and Italy that happened last week will make things very difficult for lawmakers trying to take tough decisons. In short, no end of the Euro misery is in sight. Plus, Fed chairman Bernanke has ruled out another pumping of cash into the US economy that would have found its way into the global economy and thereby raised the prices of many assets be it stocks or commodities such as oil. My answer roughly moved around these two major factors. As I write this post, it seems that the latest US jobs data is not too flattering. This will add some more impact to the negative sentiment. It was suspected that US companies would be adjusting to the reality of tepid growth and not step up hiring. That seems to have come true. Add information of a slowdown in China and there is a lot of negatives at work. In India, the markets and the economy could have benefitted if something had been done to negate these effects by moving positively on some of the areas where supply constraints are making life hell. But the government doesn't seem to be getting any of its moves right be it ensuring coal supply to power plants to clarifying aspects of its recent tax avoidance proposals. Looks like any expectation from the government is too much.