ponderings & pennings

Due to my two swift and longer than usual breaks in Delhi I could not keep a daily tab on market indicators and could gather the usual data only yesterday after last doing it on 18 Aug, a good one month ago. The movement in the data was not a surprise given the recent turmoil in developed financial markets. However, it’s a respite to see O/n $ LIBOR at 3.25% after hitting 6.44% just a couple of days before. Nevertheless, AAA Spreads over 200 bps and a drop in sovereign yields indicate that funds are being pushed to safer havens.
Coming to sovereignty, though commendable, I found the alacrity exhibited by the US govt to bail out Freddie, Fannie, and AIG rather ironical given the way it espoused capitalism as the only way to govern.
It will be appropriate if the west esp US could tone down their demand for faster implementation of aggressive capitalistic practices in India when it is amply clear that a higher level of capitalism/self regulation does not necessarily lead to an ever growing economy, a lesson that US should have learnt now. A reasonably strict and consistent regulation is a must to avoid the flag bearers of capitalism to face the music of their own doings under the impression of bull rage and reaching the verge of harakiri! Just think of it, would the Tatas been as sanguine on taking over the Tata-AIG if the holdings were vice-versa? By the way, I am in no way an admirer of Marx.
The Central Banks around the world have braced up well to tackle the financial tsunami and it was good news that they have doubled dollar swap lines amongst them which should ensure ample supply of dollars in the markets facing tight liquidity. More solidarity among them would be on display in Thailand when they meet next week.
I was going through the Aug edition of “Projects Today” and did not get an iota of a feeling that investments in India or the plans for them were under any adverse affect; though the funding for the same is actually coming under constrains. While in India the constrain is more on account of liquidity reasons introduced by the RBI to tackle the #1 problem faced by India - inflation, in the western hemisphere the liquidity is constrained, surprisingly, on account of fears of losing the parted funds/money! And if this fear spills from the corporate finance to consumer finance and/or consumerism, then the pessimistic concerns over its effect on Indian economy may well come true and it will come all the way from US of A to Asia affecting China, India and all emerging markets.
So while RBI, to pre-empt this possibility, has started taking steps to ease liquidity in India and ECB, BoE, Fed and other central banks have doubled their swap lines, the world would need some political support to tide over this situation which currently seems to be going to lurch.

You will hate me for this, but I think to save that from happening, US should consider waging war on some other “declared” enemy of its (maybe Iran?) or discover and make a new enemy. It will be in the larger good of the world economy.

Well, so much for the bad news around us. Let’s watch some nice video: