Happy New Year

Wish you all a very Happy and Prosperous New Year !!!!!

Food for thought

When we are fearful, we expect someone in authority to guide and protect us. We are more willing to submit.  911 operator speak in commanding tone and direct us (command us) to do certain things, we willingly obey them and feel safe. If we are not fearful, we won’t be that eager to obey the commands.

When we have positive social mood, we move towards building consensus and get along well. We are more willing to resolve issues rather than forming a group. In negative social mood, we move away from consensus and start forming groups.

For the last decade we have seen polarization of US politics & world politics, left, right, conservative, populist, liberal and libertarian. We have seen the movement of different ideas in opposite directions, desire for consensus is almost non-existent.

Authoritarianism begins with negative social mood trend which in turn spawns a desire to submit to authority and others to expect their fellows to do the same.  For the last decade, we have seen governments turning their backs on democracies, individual rights. Last decade is also known as the lost decade for financial markets (in the developed world), is it a coincident?

TLT Update

TLT filled the gap from 12/17 and then turned around. In the interest of full disclosure I took position yesterday after it filled the gap and turned around. I am expecting it to reach 50 DMA and above. I would be keeping my stop loss at 91.20.

For the brave heart

TLT has formed divergences on MACD and RSI and is also showing a gap on 12/17 which looks like a breakout gap. Price above 94 looks bullish to me. There is a cluster of resistance between 96.80 to 98. Initial target would be this cluster. If it fills the breakout gap then Mr. Market has some other plans. Plan your stops and manage your risk/reward. As always, please remember financial markets are probabilistic and not absolute.

Is Baltic Dry Index telling us something?

Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end customer to have a shipping company to transport raw materials across seas on the Baltic Exchange (global market place for brokering shipping contracts).  This index can be used as an overall economic indicator as it shows where prices are heading for dry bulk items.

BDI is one of the purest forward looking economic indicators compared to most of the other economic indicators like consumer spending. BDI is devoid of speculators; only relevant parties can secure contracts. It shows actual supply and demand between who have cargo to move and those who have ships to move the cargo.

Let us look at the $BDI chart. If the BDI heads lower, it might be signaling the slowdown in economic recovery.

Bubble Economics?

For last 3 decades whenever economy slowed down, credit was constantly pumped into the system. Every time the system tried to cleanse itself, credit was pumped making the system sicker. This constant pumping of credit has created bubble after bubble. If we just look at the last decade we saw tech bubble, once it burst, more credit was pumped and it created housing bubble, after the burst of housing bubble we saw stock market burst and than money went into commodity and it burst in 2008. This huge expansion in credit has to deleverage and the process has already started for consumer and private sector and the government is trying to offset it by adding to the credit supply but in the process creating new government.com bubble?

Has internet contributed to deflation in the developed world?

Nowadays there is a lot of debate going between inflation and deflation, most of the pundits believe we are heading for inflation or even hyperinflation, some believe we are in deflationary environment. Eventually we will find out what happens but one thing seems certain that we have been in a deflationary environment for quite a while now.

There are many reasons for deflation, I am sure you will get as many answers as how many people you ask. Deflation is complex and it happens rarely and there are many reasons for deflation and we don’t have enough experience dealing with deflation. Let us examine the impact of internet on deflation?

Without doubt invention of internet is one of the greatest inventions of last century. How has invention of internet impacted us?

1.   You have access to vast amount of information like never before.  Knowledge is power and nothing has served human race better than knowledge.

2.   It has increased the productivity many folds, most of us when we need syntax or need any information we search it and most often we find our answers right away.  This is tremendous increase in productivity; Increase in productivity should transfer to better standard of living?

3.   It has connected citizen of countries around the world, truly making it a global village. There is a greater dialogue between people and they are not strangers anymore, this is helping in bridging the gap and useful tool for peace.

4.   We can bank online, shop online and so on and this is huge increase in productivity.

5.   I can go on and on………

How is this deflationary? Let’s explore it

1.   Internet allows us for price discovery which is a good thing but it is deflationary. We can buy products from companies around the world which increases the competition and reduces price.

2.   Nowadays most people get their news on internet which means newspapers; publishing industry is going out of business.

3.   Most of the people watch TV/News on internet which means cable business is in trouble.

4.   When we bank online, we are reducing the need of brick and mortar shop.

5.   I can go on and on…………………

Feel free to leave your comments. Let us explore Inflation Vs deflation in the next article.

Thanks for reading.