Archive for June, 2012

Should one defy a bully?

June 4, 2012 4 comments

Should one defy a bully?


How often we have been told through school days to keep our head down and concentrate on the main thing [studies] instead of taking “pungas” with bullies?  I think there is hardly any kid that goes through school not having had to face a bully at some point.  And for most of us, that one intense brush colors our outlook for life; and affects the way we approach power and authority figures later.


I have seen little literature that helps a child face bullying although there is much on how parents should manage bullying.  That is not to say that a child would be able to make use of such literature but still.  Considering the importance of the subject, there should be some that helps adults reexamine their childhood experiences and the impact those might have had in fashioning their responses in adult life.  Too often our general response to bullying in adult life is to shrink away from a confrontation in much the same way we did as children.


So should one defy a bully?  And if the decision is to defy, how and when should that be done?


A bully is someone who uses his size [or authority, power] to compel you to do something against your will even when custom, law or practice demands no such compliance with his or her wishes.  He may wish you to do something, refrain from doing something, or simply demand you pay obeisance to him as the recognized power/authority figure.


A bully by definition does not just bully you.  He also bullies many others like you.  He does so to add to his power and authority cheaply and without too much risk to himself in terms of injury or harm to his reputation as power/authority figure.  Bullying is a way to gain power, not just over you, but others as well, and to maintain such power over you and others.  The bully is usually much more interested in maintaining his power over the others he bullies [they are more in number and hence more important to him as a source of power] than he is in bullying you per se.  If you have grasped this rather counter-intuitive point, you are half way to winning the war against a bully even though you may lose the battle and have to nurse a bloody nose or put up with a black eye.  Consider.


The pay off matrix to an established bully is asymmetric.  If he successfully bullies you, he gains dominance over one more in his flock.  But if he loses, he runs the risk of similar revolts from his existing flock that is seething with repressed rage for such an opportunity.  And most of his existing flock knows that if the revolt is staged in two or three at a time, the bully backs off.  Bullying works only when it is staged one-on-one.   In all other situations, a bully has more to lose from a confrontation and little to gain.  His best bet then is to act very intimidating at the outset and execute his dominance in private.  Any prolonged public confrontation asymmetrically raises his risks of losing some of his existing flock.  That then is your key strength in fighting the bully.  He has more to lose in more ways than you do.


Once you have grasped the asymmetric pay off matrix, it is obvious that the bully will try to bully you only till his gain from bullying you is commensurate with the risk of losing face or igniting a revolt from his existing flock.  He cannot risk a prolonged confrontation as his risks multiply with time.  So in a fight with a bully you don’t have to win the first battle in order to win the war.  You just have to raise the cost of confrontation to the bully such that he is forced to think about his hold over his existing flock.  Forced to decide between maintaining power over others and bullying you into submission with additional investment of his limited time and energy, the bully will seek greener pastures elsewhere.  True, he will probably find another victim to bully but chances are he will leave you alone after the first confrontation.


The rest of the strategy then falls into place.  Don’t seek or concede a private fight.  A bully will seek privacy while he mauls you.  Never ever give him the opportunity.  Make the fight public.  Announce it to the world.  Put it in the public arena.  Give the bully no chance to hide either his act of bullying or to conceal the confrontation from others that he may be bullying.  If possible rally the others he bullies but this is usually not necessary.  You very act of defiance is usually enough to deter the bully if he has any brains and most bullies are sharp enough for that.


Time and numbers are in your favor.    The logic of the situation kicks in with your public act of confrontation.  Thereafter, it doesn’t matter if you win or lose.  A rational bully had few options but to back off from a prolonged confrontation.  Else his career as an effective bully is finished.  That’s a consequence of his asymmetric pay off matrix and has little to do with you.  But you have a lot more to gain than he does as time goes by.


So go ahead and defy.

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Pakistan army must transcend its narrow institutional interests

June 3, 2012 1 comment

ANALYSIS: Pakistan army must transcend its narrow institutional interests — Sonali Ranade


Pakistani generals have often precipitated the very outcome they seek to forestall by trying to punch far above their weight

The summit in Chicago did not go well. The almost daily drone strikes, the standoff over Dr Afridi, and the general noises emanating from both Washington and Islamabad make it clear that even a limited agreement over the situation in Afghanistan eluded both sides. Pakistan used its trump card of NATO logistics in an attempt to coerce the US into conceding its demands but found Washington unwilling to pay the asking price. When you play your trump card, and find it does not work, you have no option but to climb down to continue in the game. Chicago was an opportunity to manage that climbdown without loss of face or lasting damage to Pakistan’s ultimate goal.

Instead, petty petulance, unnecessary posturing and false prestige were allowed to derail a vitally needed agreement, even if limited in scope. Where does Pakistan go from here?
If you are a hammer, every problem is a nail. Every issue in Pakistan, rightly or wrongly, is a nail to the Pakistan army’s hammer. Pakistan is overly dependent on its army in formulating its top-level grand strategy, simply because it has no institutional capacity anywhere else in the system that can do the job. It is not surprising that the army as an institution looks at every problem through the prism of national security. That is as it should be. But nations have a higher purpose than just simplifying the job of defending themselves. They are also free to choose whom to be friends with and whom to annoy. Every choice they make is not simply embedded in their geopolitical location. The security-specific institutional focus of the army distorts the true nature of choices available to Pakistan, and since the army is the only functioning institution available, its view prevails by default.
General Kayani is on record as saying he considers India an existential threat to Pakistan. Therefore, he is unabashedly India-centric in his approach to Pakistan’s problems. Whether that is true or not, what is clear is that Pakistan’s strategy has centred on treating India as an existential threat. As a smaller neighbour, so goes the strategy, Pakistan must be aggressive in order to keep the slower moving Indian elephant on the defensive. The 1971 fiasco in Bangladesh, largely of Pakistan’s own making because of poisoned politics and unstated ethnic tensions, confirmed the Pakistani establishment in its belief that India is an existential threat. The question should have been revisited in the context of Pakistan’s acquisition of nuclear weapons and its growing security and trade relationship with China. However, such a review has never happened, at least not in the public domain.

Why would India wish to undo Pakistan? Leaving the lunatic fringe aside, nobody in India would wish to add 200 million radicalised Muslims to her burgeoning 1.1 billion population. The very idea is ridiculous. Given Pakistan’s nukes, the question of India acquiring military means to mount such an offensive against Pakistan is farfetched. India’s growing relations with the US, more hype than reality, is unlikely to change this geopolitical reality. However, there is no institutional mechanism within the Pakistani establishment that can challenge the established army security dogma and compel it to reexamine its assumptions in a realistic manner. That is the key challenge before policy makers in Pakistan.

Pakistan is an existential threat to itself. This is one aspect of the national security dilemma in Pakistan that is exercising some political and intellectual minds but has not been really articulated and debated. Perhaps a leaf or two out of India’s experience with taming its bureaucracy will help clarify matters.
As in the erstwhile USSR, so in the India of the 1970s and 1980s, the state’s capture by its politicians in tandem with the civil service was near absolute. Taxes on the rich had maxed at more than 100 percent. Meanwhile its middle class, spearheaded by the bureaucracy, captured just about every welfare programme initiated to help the poor. The rich got poorer, the poor got poorer, and the bureaucracy and the politicians lived in genteel poverty. As in Pakistan so in India, the civil service, seen as the most powerful organ of the state, attracted the best talent. Grooms from the civil service commanded the highest dowry. There were feeble efforts at reform under Rajiv Gandhi but the bureaucracy in tandem with socialist politicians easily scuttled them. It took a decade and a bankruptcy on the balance of payments front to bring the need for reforms to the fore and tame the civil service opposition to them.

The difference between the bureaucracy in India and Pakistan is not that much, except for two things. First, Pakistan’s reigning bureaucracy is uniformed and armed. That makes it very difficult to dislodge by force. Second, it is well beyond political control, having thrown off the bit through a series of coups. With no competing institution that can rival it in terms of prestige and public support, challenging the Pakistan army’s hegemony over all other institutions in the country will be exceedingly difficult.

Change can be both endogenous and exogenous. Endogenous change within a hierarchical, well trained, uniformed bureaucracy like the army is nearly impossible. By definition, groupthink dominates such institutions and those who do not conform are weeded out early in their careers. To expect that the army will reform merely by an internal reform is to indulge in a pipe dream. The exogenous route is the only one through which change can come about.
One of the unintended consequences of the army’s domination of Pakistani institutions is its preemption of resources to meet its requirements, both in terms of equipment, salaries and perks for its personnel. That process has gone too far, leaving little to throw at other crises facing the polity. These include multiple crises at multiple levels such as gas for cooking and power, electricity, water for agriculture, jobs for the young, education and training for workers and social services for the poor. Of these, any one, or a combination of them, could implode at any time in the next few years. The more Pakistan puts off dealing with these multiple crises by its preoccupation with geopolitics, the tougher it will get to resolve any one of these crises. Most nations that have come to grief in recent years have done so by internal failure rather than external aggression. In fact, if a nation is internally secure, economically and politically, the scope for external interference reduces correspondingly. Pakistan would have been compelled to face these issues of development much earlier but for the lease of life it received by way of military and developmental aid from the US in return for services rendered. That era may now be drawing to a close.

Pakistani generals have often precipitated the very outcome they seek to forestall by trying to punch far above their weight. Playing within your game, letting the opposition make mistakes to capitalise on, learning to wait patiently for an opportunity, are all elements of strategy that are alien to Pakistan’s aggressive style. Over and above all this, learning which game to play and which to decline, requires wisdom far beyond military strategy. Pakistan may be draining itself playing the wrong game. The Pakistani assumption that it is too big a nuclear power to fail, and therefore, the world can be persuaded to offer it a living, is both untried and untested. It is best left that way.
The writer is a trader. She can be reached at or @SonaliRanade on Twitter

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MARKET NOTES: It is a global synchronized downturn for the worse

June 3, 2012 2 comments

MARKET NOTES:  It is a global synchronized downturn for the worse.



Using Russel 2000 [^RUT] as the proxy for US equity markets, one may note that the index crossed below its 200 DMA on 16TH May when the moving average was 780.  After breaching the 200 DMA support, the index fell to its first significant support at 750 and rallied from thereon 21st May.  The rally tested the 200 DMA from below, observed it meticulously as a major overhead resistance and fell back.  Last Friday, after falling away from the 200 DMA, ^RUT breached the first major support at 750, [which had held last time] and closed at 737.42.


Two things fall out from the above analysis.  As the Russel 2000 represents a broader universe of stocks than the S&P 500, its decisive move below the 200 DMA signals a broad bear market for equities in the US markets.  Secondly, while the oscillators do not indicate an unduly oversold market, stocks have been declining since 26th March and are towards the fag end of an impulsive move down.  Considering the easy breach of 750, one could expect stocks to decline further to test the ^RUT 705 support level before consolidating for a period of time in the 705-750 range.  So while the markets are bearish, fresh selling from traders at this point is avoidable.  Look for opportunities to cover shorts and to reinstate them later at higher levels over the next few weeks.


All markets and asset classes are positively correlated now.  I think people seeking a place to hide will be disappointed.



Gold:  Gold surprised everybody this Friday, not by its rally, but by the extent and strength of the rally.  In the normal course, a pullback to $1600 was on the cards before another attempt at breaching $1520 floor.  Most traders would have put in trading stops at $1620 or $1625.  Gold closed the Friday at $1625.64 after making a high of $1629.41.  That’s a clear warning to small traders to clear out of the market and let the big boys fight it our between themselves.


On the other hand, note that Gold did not seriously breach its overhead resistance at $1625 on a closing basis.  Further, in terms of my wave counts, while we are the fag end of the fall from $1920, in terms of time, there is at least a month before a substantial pullback in gold falls due.  Lastly, the daily oscillators are flashing gold is over-bought at this point.


The spike in gold coincided with spikes in the DXY, EURUSD, Silver markets and looked more like a device to shakeout weak bears than a serious attempt at a rally.  There would have to considerable base building in gold at around $1500 or lower before gold can show a sustainable rally.


I would rather wait to see gold fall back and confirm a reversal in price trends rather than treat the spike in price as something serious.  Not bullish in gold still.



WTI Crude:  Must confess; have stayed out of the market all thru the fall in Crude, February onwards.  Will wait till market reverses from $75 before reentering the market.  But for those in the market, here is my read on the charts that till now left me confused.


To my mind, the fall in crude prices is a correction for the rise in crude from $32.64 in January 2009 to $114.18 in April 2011.  If so, that makes for a textbook bullish “cup & handle” correction. The target for the last leg of the correction is $75.5 followed by a deeper floor at $70.


Indian readers, and the few in RBI who read this, may note two things about this correction.  Firstly, the fall in prices is a “bullish correction” to previous rallies.  The uptrend in pries will resume quite sharply once the correction is over.  Secondly, the time cycle analysis indicates that the correction will not last; repeat NOT LAST, beyond the end of September 2012.  So please don’t bank on the fall in crude prices.  Instead grab this opportunity to reform the oil sector.  You won’t get another chance once the big WAVE III comes into play.  The recovery in prices after a WAVE II correction is sharp, swift and leaves you gasping to understand what happened.  You have been warned.



Silver:  Silver chart illustrates why I find the spike in gold price spurious.  Silver has followed gold pretty closely since it made a low of 26.73 on 16th May 2012.  The spike in Silver on Friday did not stretch into its 25 DMA which sort of caps short-term rallies in the metal.  In terms of wave counts, I think Silver has still some time to go before it completes its wave 3 and that should be followed by a wave 5 as well.  Hence the floor $27 can be expected to give way some time over the next few weeks.  Not bullish on Silver.



$-Index [DXY]:  DXY made a high of 83.67 on Friday before closing at 82.9730.  I had anticipated a pop to 84 in the blog. The day could also count as a key reversal day indicating a halt in the price trend for some time.  In any case, the $ needs to consolidate here for a week or so before resuming or setting a new trend.  Such consolidation will have a first floor at 82.5 followed by deeper floor at 82.  A breach of 82 will signal a significant trend reversal.  Not bearish on the $ save for the anticipated correction.



$-INR:  I had anticipated a range extension for the $ from 54.5 to 57.5 with first stop at 56.5.  The $ made a new high of 56.34 during the week, signaling we may still see 57.5 over the next few weeks.  For the moment, the $ is likely to first test its new floor at 54.3 to make sure of the bottom of its new trading range.  One can expect range bound trading within the band of 54.5 to 57.5 for perhaps a month or two before rising crude prices trigger another round of weakness.  Government may be underestimating what markets have in store for India.



EURUSD:  The Euro$ [EURUSD] closed at 1.2432 after making a low of 1.2286 and a high of 1.2432, all in the same trading day.  In my view, the spike is without much technical significance except as a part of some coordinated move by professionals to shake off the crowd of day traders who entered the market late.  The spike would have wiped them out but has little to do with long-term trends in the Euro.


The Euro breached its long held strong floor at 1.26 on 23rd May and decisively confirmed the breach two days later.  Since then it has been in a free fall and, considering the velocity of the fall, the spike on Friday was not really trend altering in any way.  EURUSD first target now lies at 1.2150 followed a deeper, far more significant floor at 1.18.  The downtrend could resume next week itself after a day or two of consolidation.


The time element in the EURUSD charts is unclear.  On one reckoning, the Euro could ends its fall at 1.18 or thereabouts and turn up from there.  A more bearish view would send it all the way to parity with the Dollar over a longer time frame.  Which of the two ways the cookie crumbles will be known only by the EURUSD price action around the 1.18 to 1.20 region.  Needless to say, continue to be bearish on the Euro.



Sensex:  The Sensex rallied briefly to its 25 DMA at 16,440 before turning down.  It closed the week at 15,965.16.  The index is getting ready to test the previous bottom at 15,126 during the ensuing week or the next.  The bottom at 15,126 may not be breached at first attempt and the index could bounce from there.  But the time element indicates the test of 15,126 will not be over after the first attempt.  I would be surprised if the support did not give way.  Price action around 15,100 will provide some clues to the ultimate target on the Sensex.


Would I recommend accumulation at this stage?  The answer is no.  The cats & dogs that most retail investors buy as “investment” may be near their lows if you take their previous highs into account.  But the question is would you be prepared to hold such dogs on a further 50% decline amidst all the doom & gloom?  Most investors dump them on further declines.  Second, the blue chips that you should buy as prudent investor usually fall towards the fag end of the down turn.  That’s what takes the index down finally.  That may not have happened as yet.  So my advice would be to do your homework.  Target a select list of 15 blue chips; see their charts for previous lows.  Make a reasonable assumption of where you expect them in a crash and buy them when you see those prices.  Buy and hold.  Unless you are professional trader, that’s the best way to beat the market.  Buy the utter doom and gloom but only in blue chips tested by time.



S&P 500 [SPX]:  SPX has broken an important floor at 1290 to close the last week at 1278.04.  For general commentary on US stocks please see the write-up on ^RUT above.  This is specific to SPX.  In my view the index is likely to test 1260 next week before consolidating a bit and continuing towards 1100.  Indeed 1260 may not hold for long.  Note, SPX has decisively fallen away from its 200 DMA area and that means long-term sellers will be eager to get out of the market.  Second, the NYSE signaled a “death cross” during the week as I had predicted last week.  NYSE Composite comprises all the stocks listed on the NYSE.  So when it signals a death cross, other narrower indices should follow sooner or later.  ^RUT is very close to death cross which could be triggered next week.  SPX and DJIA could take a week or two more, but the direction should be clear.



One other point may be noted. All risk assets are correlated positively.  There are no exceptions – not even gold or crude, Iran or no Iran.


NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.



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