Inflation or deflation?
In this issue:
» Are we heading for deflation or inflation?
» Bailout bandwagon rolls on
» Communists show a flicker of capitalism
» Is decline in port traffic indicating something?
» ...and more!!
00:00 |
But our heads turn on reading - "Think 7% fiscal deficit. It's in sight" - on the front-page of a leading business daily. Proponents of deficit spending (government spending or investing more than its income; especially true for developing countries' governments' that have few resources and tend to borrow to spend) believe that a slowdown like this requires massive government spending. And we believe, to push growth, it is desirable to an extent. Pushing spending (on infrastructure and other developmental projects) is in fact a classical remedy to combat the downturn.
But how much is too much? By spending way beyond its means in troubling times like these, the government might do some good for economic growth in the medium term. But in effect, it is sowing seeds of high inflation in the long run.
Our point is that when a government controls financial decision-making of businesses, no one ends being better off. This is because the spending (via stimulus) is generally aimed to provide money to businesses/sectors that have failed (or about to fail). In such cases, uncompetitive spirits rule roost - like real estate companies in India or failed banks in the US.
While stimulation is the goal, higher inflation might be the result. We keep our fingers crossed!
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01:01 |
Considering that almost 70% of the entire transport in India is by roads, the government will have tough time soothing transporters' nerves. Are we looking at another round of rising prices of necessities as transporters' strike can delay supplies from factories?
01:28 |
We believe that the cheer is likely to be a short lived one, if one believes in car makers who have gone on record to state that 2009-10 is likely to be one of their sternest tests ever. We hope they change their mind a bit after considering the December numbers. However, it is hard to argue against their case. Although price cuts have helped, the fact of the matter is that interest rates are still high and economic environment still uncertain.
02:09 |
02:26 |
Ms. Srinivasan's resignation can now increase pressure on other independent directors to quit. Notable among them are Harvard Business School professor Krishna Palepu and Vinod Dham, the brain behind Intel's Pentium chip. Satyam's board is meeting on 29th December to consider a share buyback.
In India, we have rarely heard of managements getting penalised for short-changing minority shareholders. We believe a strict penalty for Satyam's management for persistent failures on corporate governance matters might bring some sanity.
02:55 |
Another reason for adopting this stance is the volatility of the US dollar and the fact that it is expected to weaken going forward given the amount of dollars the US Treasury is printing these days to spend on correcting the liquidity crisis. Given that Chinese exporters have taken a severe beating due to this, receipts in Yuan are expected to do away with the volatility in revenues to some extent. Now that's like going the reformist way. Think of our communists!
03:31 |
03:54 |
The industry, which was reeling under recession and back to back failures of big budget movies (Yuvvraaj, Drona, Love Story 2050) finally has something to cheer. While 'Rab Ne..." got fabulous response in its first week with business of around Rs 410 m, Ghajini has rocked the box office, raking in 100% collections across the country on its opening day.
04:19 |
04:28 |
Decline in port traffic can therefore be seen as an indicator of a prolonged slowdown in India's trade with other nations. However, unlike other Asian countries that depend a lot on exports for their economic growth, given India's low dependence, port traffic will not be one of the key indicators that spell economic troubles ahead.
04:52 | Today's investing mantra |
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