Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
When bankers become speculators... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 17, 2009

    When bankers become speculators...

    There are few more things that could be in inertia in the US.

    The labour market is yet to show any sign of recovery. The income growth remains in low single digits. House buyers still seem wary of further correction. Banks are unwilling to lend. Now you could also add interest rates to this list. Yesterday the US Fed confirmed its resolve to keep interest rates near zero for an 'extended period'. The same backed by hopes of recovery. Ignoring the fact that trillions of dollars of stimuli have had little impact so far.

    But that has not stopped the Fed from speculating and fuelling speculation. Probably it has few options. The US Fed certainly has a tough job at hand. Comforting investors, taxpayers, unemployed citizens, other regulators and global financial community is not easy at one go.

    In the Fed chief's own words, the US economy faces formidable headwinds including a weak labour market and tight credit. It thus cannot help but speculate about more jobs being created and exit from the loose policy stance. Besides supporting economic growth, it needs to show that it is concerned about potential inflation as well. But the least it can afford is to send out signals that monetary tightening will occur sooner or later. For this could complicate efforts by policy makers to reduce the 10% unemployment rate.

    Meanwhile Treasury Secretary Timothy Geithner sees plenty of reason for US taxpayers to cheer. First the US banks that have started repaying TARP funds will be in a better position to resume lending. Second, banks are repaying taxpayers with interest. As per his calculations, TARP has earned more than US$ 15 bn in income from the sector. Thus he believes that the rising asset values have a strong fundamental backing.

    For the rest of the world, the inertia in US interest rates puts a lot at stake. The strength of the dollar, the reserve currency, being the most important amongst them. Whether central banks would continue to purchase gold? Whether exports to the US would remain profitable? Whether foreign inflows would be speculative rather than strategic? The answers to these questions determine the future of world economic order.

    Meanwhile global asset prices, be it gold, stocks or real estate may continue to be backed by US speculation. A weak dollar may continue to push gold prices upwards. Hot FII money may find solace in expensive emerging market stocks. In some markets like China, most of it may end up funding more buildings and factories than the citizens need.

    We believe that speculation is best left to those who wish to make a quick buck from every sound byte or every character of a news item. Few can do so profitably for long. Having said that, bankers and more specifically central bankers have their roles as long term watch dogs clearly cut out. A basis point of change in interest rate may not hazard their jobs. But they certainly cannot risk the future of the economy by tweaking interest rates to suit their speculative interests. We hope the Fed will also realise this soon.



    Equitymaster requests your view! Post a comment on "When bankers become speculators...". Click here!

    2 Responses to "When bankers become speculators..."


    Feb 9, 2010

    bankers the world over become jittery of lending when borrowers have no visible and convincing means of repayment. nothing new. the FED must be wantonly pouring cheap money into the economy, because perhaps that is simply the easiest thing to do. they will perhaps tackle the aftermath in their own way. by that time the economy may be strengthened and ready for belt tightening. there must be some logic in their seemingly foolish acts. arent we taking our time in withdrawing the stimulus? aren`t we moving warily. one perhaps has to wait and watch before we pass judgement.
    they must first be guarding against further deterioration, perhaps. cutting down unemployment is important. for that banker may not be the right tool. we must look back at the NEWDEAL of FDR. THERE MAY BE A LESSON THERE.



    Dec 17, 2009

    schadenfreude - the joy in someone's discomfort. In this case, our joy, at seeing the "mighty" US being brought down. Look carefully though - they are getting back the TARP money, and may even make a profit on their half a trillion dollar "investment" in TARP, as they did in the eighties. Next, they used TARP to fuel their auto industry for a while (cash for clunkers), and improve their environment, even if marginally. Now, they plan to use it to use the energy efficiency of their homes - push their construction industry while reducing their energy usage.

    When I was small, my mom used to quote me examples of a cousin who used to do well at sports. Once, I got so irritated I said, "but ma, he gets 2 on 30 in Maths. I always get top marks". She coolly replied "beta, logon kee achhaiyon kee taraf dekho, buraiyan nahin" (look only at people's goodness, not their weaknesses). One wise guy a long time back also once said 'bura jo dekhan main chala, bura naa miliya koye; jo dil dekha aapna, mujhse bura naa koye".

    But how would media sell, how would websites get "eyeballs", if they did not keep making shots at all and sundry?

    We must learn from how the US and others are trying to get out of their hole, and copy some of their innovations.

    Equitymaster requests your view! Post a comment on "When bankers become speculators...". Click here!

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms