Things Get Scarier in Europe

The happenings in the Italian bond market, the third largest in the world, are getting scarier. Unless the political scene there gets fixed with a PM who inspires confidence in the markets and European Central Bank comes up with a big enough emergency fund, the world economy and global markets would be on the edge. After Italy, it will be the turn of France. For India, the biggest challenge will be the rapidly declining rupee as dollars move out of India. It is already at a 3-year low I believe. This means more inflation among other miseries. Like my previous visits to the All India Radio studios, yesterday I was asked about eurozone in their popular stockmarkets programme. 

Beyond RBI's Rate Hike

I was in All India Radio studios last evening again as an expert to comment on news developments. As luck would have it, RBI raised the interest rates for the 13th time yesterday and most of the anchors' questions moved around the event. While asnwering the questions, one or two interesting things struck me. Apart from the usual things that a rate hike typically does, such as raising the rates for retail loans and fixed income options, which this move will obviously do, there are a few other things that are possible. First, if things get real bad on the global economic front such as a deeper mess in Europe and the US and there is a credit squeeze in India with forex moving out and back, the RBI could reverse the rate regime as an emergency measure. The state of government finances is such that instead on the fiscal side, fire-fighting might have to be done on the monetary side. Second, it is now quite clear that corporate earnings  will suffer for some quarters. This means that in the absence of increasing revenues and profitability, companies will try to cut costs. First, future investments, travel, promotion and advertising. Then, manpower. During a Diwali party, some people told me the kind of job losses taking place in the telecom industry. Of course, bloodletting on the manpower front in mutual funds and insurance industry is now known to all. What a reversal of fortune? Maybe a case of "what goes up.......".

Eurozone: Our Misplaced Hopes

Went to All India Radio studios on Tuesday as an expert in their stockmarkets programme to   comment on news developments. One of the anchors asked me what I thought of reports that European leaders wouldn't be able to hammer out a solution to the eurozone problem this weekend and whether it wasn't too much to expect something like that over a weekend. I agreed with the anchor and said that the problem was just too big and too messy for a weekend clean-up job. As in every economic crisis driven by a financial crisis, trust and faith become casualties. Somebody has to lend for the borrowers who can't pay. The job was done by financial insitutions for sub-prime guys before many of whom went broke. Governments then stepped in and some of them are now broke for that reason or general over-indulgence. Anybody who is lending now needs an assurance that the money will come back. When governments go broke just who gives that assurance and how? Just how much of your future income do you use to mend your today? You got to be kidding to think that this will blow over soon. How much more time will this take? Some more years? Perhaps.