All things Money Thread

Big Daddy

Super User
A correction is coming because US market has given over 8 years of positive returns. It is unusual for such a long positive return run. However, the magnitude or average of positive returns for last 8 years is still less than historical index average for S&P 500 index. This seems to indicate that market is not overvalued significantly (at least historically). So I do not think there will be market crash. There may be a negative return in may be 2018 but not a big negative return. I do not think 2017 would be a very bad year. The only way to make it bad is if Trump is ousted. Only then, market uncertainty becomes significant.
 

citymonk

Super User
But why are Indian markets touching new heights daily.

Every body know Modi Sarkar is fudging figures.

In spite,
No new Jobs are being created.
Old Job holders are getting pink slips in mass.
All type of Businesses are facing unprecedent recession.
Physical Markets are at their lowest.

No cash in market too.

Then why are Indian stocks index going high day after day, even if share markets reflects futures.

Something is missing in all this game.
 

Big Daddy

Super User
Nothing is missing. Markets go up when companies give profits. When companies layoff people, they are increasing profits by cutting costs. So that is good news for markets. Ideally, you want economy to grow, and companies to hire due to revenue growth.

Profit=Revenue -Cost.

When economy grows, revenue increases and profit is likely to increase provided you diligently control cost. However, when economy does not grow (constant revenue), companies can still increase profits by cutting cost. That is what Indian companies are doing and market likes that. For declining revenue, companies will cut cost aggressively.

Companies do just fine in either environment. However, government needs more people employed because their income tax revenue increases. This is why governments need to grow the economy. Companies primarily focus on profit equation only.
 
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citymonk

Super User
Profit=Revenue -Cost.
Agreed.
Companies have to take profits home but Job cuts too means low purchasing power of masses and inability to pay old EMIs or start new EMIs by spending.

Low spending will spoil everything , low revenues for government and low volumes for companies aswell.

Real state has been benchmark of economy previously, and this sector bubble has fisseed already.

Anyway if Share Index is rising right now it is no bubble in making and is based on real earnings of Indian companies unlike Indian property bubble.

Is Share Market not mirror of economy, as previous government used to say.
 
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Prasham

Armchair Traveller :(
Equity markets work not only on current but also on future prospects. First positive factor is strong and stable governance under NAMO & Second is GST which will help government earn loads of money in tax income. This will be in turn be used in infrastructure which will start the positive loop which will touch all industries eventually. Hence the euphoria.
 

citymonk

Super User
Equity markets work not only on current but also on future prospects. First positive factor is strong and stable governance under NAMO & Second is GST which will help government earn loads of money in tax income. This will be in turn be used in infrastructure which will start the positive loop which will touch all industries eventually. Hence the euphoria.
Future may be bright as share bazar is indicating.
But what about present, why things are so bad right now.

Namo may not know or accept that but retail business in North is in doldrums. Why this recession right now, since flow of money is normal now.
 

Big Daddy

Super User
Markets have several factors and their relationships are extremely intricate to be known with any degree of certainty. One of the reasons for bright future may be the indication of commitment from companies to cut cost aggressively. With that commitment, shareholders know that their dividends may not take a huge hit so they may not want to sell.

The real reasons of recession may not be clearly known because India is not a country that solves problems. It is all about Indians outsourcing their decisions to their government thinking that government knows best. A typical logic that prevails all over world is blame America. So, Trump it is. In reality, it could be something different all together. India embraced Net Neutrality. No one knows what impact it had on IT jobs? Clearly, Indian government will not like to take blame for it because now it can play favorites with the new power given to it. It may be abusing this power and hurting the economy but who cares? Traditionally, Indian government employees want power to control others. Indians gladly hand over power to their governments.

Besides, this whole story of India stock market doing well is a myth. Especially, if you look at other factors such as currency valuation, inflation and real net returns. For people who can invest in any market in the world, there is only one market that gives excellent returns and that is the USA. I can invest in Indian market but I do not want to. I do not want to invest in China, Europe, Canada or Japan either. I do have some investments in these countries only for diversification purposes but none of these countries have any future whatsoever. At least not compared to the USA. This is not just me, but everyone in the world thinks that way. Even Russians have most of their investments in America. If Indians are given this option then even they will abandon Indian stock market and move their money to the US market.

Indian market is by far the worst stock market out there. The reason is that India's credit rating is just above junk status. This means Indian government cannot take any more debt to finance infrastructure. If it does, it will end up paying higher interest rates due to lowering of its debt status. India has been lucky due to lower global oil prices. Otherwise, its debt would be ranked junk already. What does a country's debt status has to do with stock market? It is taxes. Countries with higher debt & lower ratings will have high corporate and income taxes. This will put a weight on both corporate profits and citizens' wealth leading to poor economic performance. Regulation, including net neutrality, is another thing that does similar things. Regulation bloats government employment requiring higher taxes to fund such employment. This is the curse that European Union is subject to leading to poor performance of Europe's markets. With China it is wasteful spending in infrastructure and one belt one road is a stupid decision.

The strong value of dollar is another reason why people may be investing in stocks. When dollar is weak, gold is strong because a lot of American money flows into gold raising its prices. A few years ago, Indians invested in gold. Like real-estate that bubble has burst so Indians have little choices left but to stick to stocks and bonds.
 
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citymonk

Super User
For people who can invest in any market in the world, there is only one market that gives excellent returns and that is the USA. I can invest in Indian market but I do not want to.
You can but not vice viceversa.
How can Indian invest in US markets, is it not injustice if they are not allowed to do so.

A few years ago, Indians invested in gold. Like real-estate that bubble has burst so Indians have little choices left but to stick to stocks and bonds.
Yes Fixed Deposits but this government is reducing yield on this instrument day by day .
It is no more attractive options as they tax it heavily and promising to discourage the option by offering negligible interest rates.

One of the reasons for bright future may be the indication of commitment from companies to cut cost aggressively. With that commitment, shareholders know that their dividends may not take a huge hit so they may not want to sell
If IT companies are showing profit by kicking out employees then this also means they are loosing orders. Poor order book also means poor revenues.
 

Big Daddy

Super User
Yes Fixed Deposits but this government is reducing yield on this instrument day by day .
It is no more attractive options as they tax it heavily and promising to discourage the option by offering negligible interest rates.

If IT companies are showing profit by kicking out employees then this also means they are loosing orders. Poor order book also means poor revenues.
On IT companies, I agree that ideal condition would be to increase revenues and control costs. However, in high growth environment, you cannot control cost aggressively due to competition for talent. As a result you have wage inflation. The environment today is that wages are high thereby reducing competitiveness. Think about it. If India reduces its salaries by 50%, it becomes attractive market again. There is nothing Trump can do if India starts working on dirt cheap wages. American companies will send business to India. This freedom is what keeps US stock market attractive. Higher profits by US companies also get higher tax revenue for US government so no one can really complain.

The problem is that Indian wages have caught up. What companies will do is fire people and then rehire them at lower wages (while blaming US for their need to fire). Cost and revenue variables are not entirely independent. Lower cost and revenue may actually increase. However, significant revenue increases may lead to increase costs due to wage inflation. So as I said, these relationships are not that straight forward.

On Fixed deposits. Government is cheating because Indians are inherently not very smart people to handle money themselves. What I mean by that is that an average Indian investor would love to give money to government with guaranteed 10% interest rate because he is afraid to take risk and lose it all. Now let's look at Sansex averages. Assume that government takes this money and invests in SANSEX index. The previous government got 21.7% return, gave 10% to people and kept remaining 11.70% to itself to fund social programs. Modi's government got 8.94% return, so it either increased taxes, printed more money or demonetized to give 10% in fixed returns. Clearly, when market does not perform well, government is screwed in several ways. Notable, this is just an example and that does not mean that Indian government takes this money and invests in Indexes. However, it clearly shows that individual investors are better off taking individual risks. Outsourcing risks to government means poverty.People in government are not exactly best business minds. It is quiet the opposite.
sansex.jpg
 
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citymonk

Super User
Modi's government got 8.94% return, so it either increased taxes, printed more money or demonetized to give 10% in fixed returns.

10 % is too much to ask, it is hardly 6.5 % currently. Current government started with 8 % only, it was never 10 percent in last 8 years.

Indians who put money directly in stocks were cheated by Market players and Government helped these cheats. These loosers were mostly retired Bank employees, as they had huge Retirement funds, given as fixed deposits.
It was supposed they will earn pension from fixed interest and also leave legacy for heirs. But Some lost money in shares and others who remained in fixed deposits are feeling cheated too. With falling interests rates their monthly income is decreasing day by day as inflation is increasing much faster.

In nut shell those who went to open markets lost instanty and those remained in fixed deposits are slowly losing too. Government is cheating them, in anyway possible.
And I am talking about Bank employees, who are smart, educated and trained enough to handle all kind of funds.
 
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