An Anonymous Post.

April 26, 2019 Leave a comment

Warning:

 

I am not entirely comfortable posting it here because I don’t have the author’s permission to do so.  In fact I don’t know who the author is.  But it makes some important points & offers crucial insight into how “appropriation” works and why it is important to recognise it.  Akaar Patel had once offered a similar insight but he appears to have lost his voice these days.  So take with a pinch of salt.

 

Text of DM:

 

 

“There is a proverb in Malayalam that says that when a trivial man suddenly becomes wealthy, he will hold an umbrella at midnight to avoid the sun. That’s the story of cringeworthy Modi.

His latest interview shows the extent of his megalomania, his vanity, his pretensions and pomposity. He is so in love with himself as PM, so enamoured at getting such a plum post that he perhaps never dreamt would be his, that he now cannot see any boundaries to that ambition. It’s overvaulting. It’s unchecked. It’s urgent. A monumental personality flaw.

So, in his manic hurry to grow exponentially in stature,he merely appropriates all the symbols available of greatness. In the first year, the monogrammed suit and meeting with Obama where he broke all protocols and went into first name calling and informal bear hugging on the first meeting, was intoxicating. It turned his head irrevocably. It catapulted him into a rarified space of wealth, influence, and most importantly power leading to hubris. It’s what classically happens when you get something too precious too soon. You lose its value. You begin to think it’s your birthright. You take it for granted. A niggle of worry about losing it ignites rabid fear.

Then your humble past, the housemaid status of your mother, the tea selling boy, the chowkidar nomenclature, the begging fakir, the visits to the lower middle class house of mother (almost stationed there like a prop) all simply add to the heights you scaled. You use it to fill the ordinary people harbouring modest ambitions, with extraordinary awe.

It is clear from the recent puke worthy interview with Akshay, that that first brush with the most powerful world leader, even today, makes him blush and flush with pleasure as he very immaturely brings in Obama’s name, completely irrelevantly into an unrelated question and claims intimacy of a childhood friend’s familiarity. The tu nonsense will be trolled for a long time. This paints over the grimy beginnings and appropriates all that Obama stands for. Education, class, power, wealth and prestige. In one sweep you try to own it. People who see through want to puke. Many, who don’t, are impressed.

This macro appropriation of colossal power is seen in the speeches where he never fails to tell you he represents 1.3 billion Indians. He made it 6 billion at Davos appropriating 80% of world population in a Freudian slip.

Then he talks about purana naata with all countries he visits thereby creating an earlier bond that increases his network of influence.

The travels, the hugs are part of this appropriation of international spaces where he probably thinks he has conquered hearts and loyalties by landing on the soil in a Caesar-like veni vidi vici mode. This is reflected in his bhakts telling you about how he put india on the international world map.

Then we have the threats. If you are not with Modi you are anti national, traitor, seditionist, terror sympathiser, Pak lover etc. Here, he appropriates nationhood, patriotism, loyalty, pride of all ancestral history, in order to again, in one giant sweep glutton up the country of its past, present, and future.

Furthermore, recently he appropriated the might and significance of our entire armed forces. His minions will swagger about how it is ‘Modi’s army’ as if he were Alexander on an interminable mission of conquest. He tries to buy votes on martyrs as he genuinely thinks they are his foot soldiers.

He will use every tragic event to politically push his agendas. All work done by previous governments are disregarded so that he can have that last applause by placing the cherry on top and claiming to have done the whole job himself.

A master of image management he will announce schemes with pomp and pretend they are achievements merely by virtue of their having been announced. He is not a man pretending. I do believe he is in a mentally delusional state where he believes that he has truly achieved. Hence the allergy to questioning. It will break the mould. That pain, a lot of self deluding mental patients living in denial will tell you, is excruciating.

Several interviews, created on the eve of the elections have put paid to the criticism that he fears the Press. But then, in those meticulously crafted interviews of Prasoon Joshi and Akshay Kumar, we clearly see impotent anchors asking benign rhetorical questions that are all couched in predicated glorious praise embedded in, and preluded by How can you be so amazing Mr. superhero? Are you for real? There’s no one quite like you baby! kind of trash. Yes, it puts your teeth on edge.

This very small dwarf of a man then smiles in self indulgent pleasure desperately trying to control his ecstasy and dons a benevolent, self satisfied, karmic, wise expression before spewing forth a bunch of hallucinations, scripted to make him look progressive, contained, objective, magnetic and well connected. None of which is remotely true. A congenital liar needs no cloak of shame. One that has begun to believe his own lies lives in a parallel, altered universe.

The submissive, obsequious and pusillanimous anchor putty clan simper along with the patience of Job. They could be interviewing God Himself! No counter points, no uncomfortable questions, no interruptions, no interventions, no screaming , nothing! The one with Akshay on mangoes and other trivia tried to paint him as an accessible human while heaping praise and allowing for truckloads of bragging.

If Modi could make a trip to outer space, even if they flew him to a satellite station, he would appropriate the stars, the galaxy and the universe. They would come back with stories of miracles. And the bhajan mandali on Earth would say he is an avataar of none other than Sri Ram.

The megalomaniac’s journey from the regional, through the national and international, to the cosmic and divine would then be complete.”

Categories: Uncategorized

Restricted Access Model of Corruption:

April 23, 2019 Leave a comment

These are basically my tweets on the issue of some innovations that have surfaced in the sphere of corruption of our political economy that I made some time back.  People have been asking me to consolidate my tweets at one place on some topics.  So this represents the first of such consolidations.

 

I am a rather poor writer with little patience for the art. Will try & blog some ideas and see how it goes.

 

Thank you for reading.

 

Innovations in corruption.

There has been a lot of talk about ushering in a corruption mukt Bharat. The truth is that there has been some fresh thinking about corruption under the new Government & I would like to share my thoughts on the same with you.

So here goes. 1/n
The first is that the earlier regime was riddled with hypocrisy. The fact is running a party machine, fighting elections, and motivating & rewarding political workers is an expensive business. It requires funds that only the wealthy can provide & so there is the inevitable deal.

Under the Congress, prior to 90/91, a combination of the license/permit raj and patronage to those who could pay rents, provided the key funding for Congress. Which is not to say the opposition was chaste. Their chastity was mere lack of opportunity. Model was the same.

The Congress system was “free-for-all”; anybody who could pay was welcome. Everybody had equal access. The highest bidder won. Second, when the people at lower echelons saw this game, the replicated it at their level. Corruption ballooned. Politics became business.

90/91 changed the game by ushering in economic reforms destroying the old rent seeking model by abolishing the central licensing. This had an unintended consequence. As the Central Govt. shed its control over levers of patronage, the action shifted to the States.

Although no license required, entrepreneurs had 2 still line up before state Govts 4 allotment of land, water, electricity, labour permits & a host of other things. So rent extraction shifted from Centre to states & regional leaders gained power of patronage from the centre.

As power of patronage shifted to States, the Congress leadership in Delhi grew weak and the regional leaders far stronger. So much so that by the end of PVNR Govt., Congress party itself began to unravel as regional leaders revolted or struck out on their own.

As U can see, corruption at all level except Delhi multiplied. It was in the milieu that BJP stepped in. ABV followed the Congress model. Paid the price. When Congress returned to power, it had learned nothing from experience. The old State level rent extraction continued.

The present Govt. did learn important lessons from BJP experience. You cannot decentralize power of patronage & still control a pan-India political party. That’s was the Gandhi family’s political blunder. Modi ji therefore concentrated all such power in himself.

But if money is generated by state level leaders, how do you centralize power of patronage. Hence anonymous electoral bonds. Those seeking patronage go to the top, make the deal, contribute anonymously to the party kitty. Regional leaders are not involved. U control the treasury.

That is why Congress also supports anonymous electoral bonds. If & when it returns to power, it will help the Gandhi family to reestablish central control over the party as it was before 90/91. So they make noises but favor electoral bonds. Now 2 the 2nd innovation.

Recall I said the Congress system was free-for-all & widely emulated at lower levels by those controlling patronage. This model is terribly flawed in game theory terms.

2 simplify, if everybody can corrupt [free access] and everybody can accept bribes, the earnings of all fall.
As usual economics tends to be counter-intuitive but bear with me. First the demand side from tycoons. If tycoons have to compete 4 patronage, they will bid the highest bribe they can afford. Competition puts costs up. Where will they recover these costs from? Obviously you.

So if rents that can be extracted from you consumers are R and the bribe paid is B, [R -B] is the profit to the tycoon. As many tycoons are competing & its is competitive bidding, the [R-B] over time falls to 0. So the tycoons gain nothing from corruption.

On the other side bribes are the total rent that can be extracted. More people you share it with, the per capital share falls. So the free-for-all corruption under the Congress model is very inefficient. Not only that, it is also very noisy b/c prices must be disclosed 2 bidders.

The present Govt. has wisely moved to eliminate the free-for-all model and replace it with a restricted access model. Now everybody cannot bid 4 patronage. Only a selected few crony tycoons may bid. And secondly, the bids are tightly controlled at the highest level.

What the Restricted Access model does to increase both tycoon level & party level yields from rent seeking. Since competition is restricted to few cronies they need not make competitive bids. So B is smaller, [R-B] is bigger, they are happy. And B is not shared. Happiness.

Not only is the Restricted Access model more profitable 4 tycoons & politicians it is also not noisy as before. Since bidding is not competitive, there is no need to disclose price. Lower level corruption is not allowed but actually punished. So corruption visibly decreases.

That then is magic of the Restricted Access Model. You can reduce visible corruption, you can prosecute corrupt people lower down 2 discourage competition, be a corruption fighter & still maximize rent yield to your party. What could be better?

Now you will better understand why even BJP has copied the Congress model of appointing CMs from the central level. U can’t let state level people compete with you for share of rents.

That’s where we are. BMKJ.

 

Some additional notes to above tweets for further study & research:

  1.  The idea of restricting access to rents from corruption to a selected few is not new.  It is based on the ideas of Nobel Laureate Gary Becker who first showed that it makes great sense for the corruptors [rent seekers] & the corrupted [the politicians who create rents] to restrict competition for rents by restricting access to them through creating barriers to entry.  This prevents dissipation of rents through competition thus ensuring the maximum returns to both groups.

 

Screenshot 2019-04-23 at 8.06.10 AM.png

 

2.  The RAM of corruption has the added advantage of reducing visibility of corruption that accompanies wider participation in rent seeking.  Secondly, it allows the elite rent creators [politicians] to claim the hallo of corruption fighters by being seen as keeping out those rent seekers who are in any case to be denied the benefit of rents.  In fact the more you eliminate corruption at lower echelons of Govt. the higher the rents for sharing available to favoured rent seekers & politicians.

 

 

Screenshot 2019-04-23 at 8.45.12 AM.png

The excerpts from the book “Political Capitalism” by Randall G. Holcombe.

 

 

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GUEST POST by @ArguingIndian : Profound Simplicity to Confused Complexity: Modi’s journey from Hope to Fear

March 23, 2016 Leave a comment

When the current Prime Minister of India Mr Narendra D. Modi started his campaign in 2014 for the Prime Minister post, He builds all his campaign around the word “HOPE”, A hope of brining “Acche Din”, Is he able to fulfil his promise ? If we go by the events since he took the oath and analyse it from the socio-political prospective, the result looks quite disappointing. While selling his product ( Acche Din) to his customers, i.e. voters the value proposition Mr. Modi has offered is not yet delivered. What could have been the implication if you put this in the professional scenario, of course you would have been fired. Critics could say democracy work in a different way and he would be judged after five years. Agreed, so how the relation of voters and Government does works; let’s go to the very basic of government role defined by Social Contract Theory1. In the trade-off of surrendering natural rights, Individuals in return are guaranteed civil liberty, freedom, rights, and equality by the govt. And, “Will” not the “Force” could be the basis of enforcement of social contract.
What forced Modi to adopt the divisive agenda or it is the natural outcome when you identify yourself as a Hindu Nationalist? BJP and its followers since beginning have focused on exclusion of minorities and opposition. They don’t see them as the actors of democratic society. In the last two years many incidents took placed; Dadri incident when Akhlaq was killed by the religious fanatics, exclusion and target of minorities over the issues of love Jihad and beef ban, JNU incident where civil liberty has been put under the lock. And it’s not only the socio structure which is under the pressure, Economy is in doldrums and the failure to revive economy has squelched the hope. Current govt has failed to implement the social contract. And his silence has been amplified by his supports by going berserk. Modi and his followers have tried to shut every legitimate voice of criticism by labelling it Anti- National. Hounding one community has become the hallmark of BJP followers, while doing so, they forget that in comparison to the west, Indians believes in collective identity. Therefore, when you are offending a person’s belief you are not offending a single person, it’s the whole group which get offended.
We all have witnessed how Modi’s campaign of hope has been turned into a fear. Why Hope always worked in the case of mobilising people and not fears? For an individual hope’s cognitive process releases an endorphin like emotion. Hope creates resilience and requires lots of resources and broad focus to fulfil that desire. In contrast to hope, fear operates in primitive areas of a brain. Fear trigger anger and frustration and operates with a very a narrow focus. Modi and his followers while playing with these emotions should realise that over using both, hope and fear can lead to distractions. Has the all Hope is lost or Mr. Modi has lost the focus? How he could revive the Hope and get away with the atmosphere of fear. For that he needs to show the attribute of a leader where a leader change his roles form autocratic to democratic as the time demands. While his silent node on all the incidents has been amplified by the supporters, as a PM of the country he should address the concern of minorities. To get the economy back on the track reconcile the differences with opposition on the crucial bills. And lastly, should avoid useless confrontation of interfering in educational institutions and rewriting the history. All can be achieved if Modi and his supporters adopt the policy of inclusiveness instead of divisiveness, though it is not the forte of Modi supporters but desperate times demand desperate measures therefore instead of pandering to his core base the time demand to rise above to the party politics and lead the India.

 

Mr Modi role in the new govt was to convert the Hope into the reality instead what we see all around is fear. In a society every role has fixed part to play with the predefined rules. When the role system2 collapsed, it leads to panic. “If a role system collapses among people for whom trust, honesty, and self-respect are underdeveloped, then they are on their own. And fear often swamps their resourcefulness. If, however, a role system collapses among people where trust, honesty, and self-respect are more fully developed, then new options, such as mutual adaptation, blind imitation of creative solutions, and trusting compliance, are created. When a formal structure collapses, there is no leader, no roles, no routines, no sense.”2 if we look closely we could see that currently India is going through the same phenomena.

 

References:
1 Rousseau, Jean-Jacques (1762) “Du Contrat Social”
2 Weick, Karl E. (1993) “The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster” Administrative Science Quarterly GUEST

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Guest Post: Thoughts on Polygamy by Shealja Sharma

For long tweeple are debating on Polygamy and Monogamy, some are in favour of Polygamy while others opposes it. While they have their own reasons to support or oppose, I tried to search and read on the topic of Polygamy and monogamy And why Modern states are more inclined in the favour of Monogamy.
Lots of data and research suggest that all most all the societies have progressed from Polygamy to monogamy because the social problem it has created . How ? let’ see point by point

In 2012 University of British Columbia-led study that explores the global rise of monogamous marriage as a dominant cultural institution. And study finds that “significantly higher levels rape, kidnapping, murder, assault, robbery and fraud in polygynous cultures”

1) Problems for young man : It has been seen and proved that wealthy male of the society prove to be a stasher of wives. It increase the competition for partner and low status males had high chances of not getting any partner. According to Study

“ A little chances of obtaining even one long term mate, unmarried , low status men heavily discount future and risk taking, resulting in more socially undesirable behavior. Like higher rates of murder, theft, rape, social disruption, kidnapping, sexual slavery and prostitution”

2) Problems for Women : Polygamy reduces woman freedom, increase gender inequality and domestic violence. As in polygynous market men remain on the marriage market for longer term, it reduces the age of first marriage for females, increase the spousal age gap. Due to competition men uses all type of influences, connection and power to obtain wives. Also strike financial deal with their fathers and brothers. According to study:

“ More competition motivates men to seek to control their female relative, suppressing women’s freedoms”

3) Problems for Children’s : Monogamous marriage also results in significant improvements in child welfare, including lower rates of child neglect, abuse, accidental death, homicide and intra-household conflict, the study finds. These benefits result from greater levels of parental investment, smaller households and increased direct “blood relatedness” in monogamous family households, says Henrich

Refrence :
http://news.ubc.ca/2012/01/23/monogamy-reduces-major-social-problems-of-polygamist-cultures/

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MARKET NOTES: 29.03.2014. The bear market in Copper & Crude may be done.

March 30, 2014 Leave a comment

MARKET NOTES: 29.03.2014.  The bear market in Copper & Crude may be done.

 

The US Dollar [DXY] may have topped out at 80.50 and may be headed down towards a retest 78.50.  But the more significant news is from Copper and Crude. The charts indicate that the bear market in industrial commodities [& agricultural commodities not discussed here] may finally be over.

 

Bear rallies currently underway in Gold and Silver may have been interrupted by corrections but are far from over. I expect sharp uptrend in prices of precious metals to resume shortly, although the long-term picture in them remains pretty bearish.  That said, the bear-rallies, [with sharp corrections] have months to run.  Position traders should avoid the short side of the trade for now.

 

 

 

Gold:

290314_Gold_weekly.

 

 

 

Gold is currently positioned at $1294.30, a bit below its 50 & 200 DMAs even as the 50 DMA has pierced through the 200 DMA from below after a long time.  Is the rally in Gold from the low of $1202 on 12/31/2013 over?

 

By my reckoning, the long-term down draft in Gold that began from a high of $1923.70 in September 2011 has completed its first half of the journey at the low $1202.30 on 12/31/2013.  The rally from that point is one of a corrective nature and should run over many months with a target of $1550 or so.  What we have seen so far in 2014 is just the first leg of the corrective bear rally that topped out at $1392.60 on 3/17/2014.

 

A 50% retracement of the rally from the low of 1202.30 to the high of 1392.60 reveals a likely target for this rally at $1180, a price point fairly close by.  A much more robust floor is also close at hand at $1260 which also happens to be the 61.8% retracement level.

 

My sense is that gold will pivot sharply from one of these either of these two price point, most likely $1260, to rally sharply higher. The weekly chart appended above shows the first half of the long-term downdraft & the subsequent corrective bear rally underway in the larger technical backdrop.

 

While the long-term correction is gold is by no means over, the bear rally underway has a long time to run ahead and the retracement completed so far is but a fraction of the likely target. It is dangerous to be on the short side of Gold despite indications of a rally in $DXY which would normally serve to tamp down precious metal prices.

 

 

 

Silver:

 

290314_Silver_weekly

 

 

 

Silver has much in common with Gold in terms of the long-term correction underway in the metal but there are significant differences in price behavior.

 

Silver, much like Gold, has completed the first half of the long-term correction on hitting a price of $18.335 on 6/27/2013. It subsequently rallied to $25.126 in a sharp bear rally and has been correcting from there towards $18 level ever since. Silver failed to make a new low in December 2013.

 

My sense is that Silver too is likely to rally upwards from the $19 price region and the ensuing bear rally could take the price higher that $25 that we have seen in the first pullback.

 

Silver has seen $19 has seen very strong support at $19 a number of times in the recent past.  The current price at $19.79 leaves very little on the table for bears and is a perfect opportunity for bulls.  So like Gold, while I am not bullish in the long-term, I would touch the short side of the trade & would be comfortable going long with a stop just under $18.5.

 

 

 

HG Copper:

 

290314_HG_Copper_Weekly

 

 

Industrial & agricultural commodities, unlike precious metals, present a very bullish picture at the end of their long 6-year bear market.  Copper may have put at end to its bear market correction with the low of 2.9145 hit on 3/13/2014.

 

 

Copper began the latest leg of its bear move from a high of 4.58 on 2/03/2011.  It has seen a classic 5-wave  [with an extension of wave3] wave down to 2.923 on 3/13/2014.  To my mind that completes the bear market correction for Copper and we may into a new bull cycle for the metal.

 

Copper is currently positioned at 3.0315, off its recent lows but well below its 50 and 200 DMAs in the 3.20 price region. Copper is a buy for position trade for a target of 3.40 with a stop just under 2.90.

 

 

 

 

WTI Crude:

290314_WTI_Crude

 

 

 

 

WTI Crude has been in a long-term correction ever since the high of $147.27 on 7/11/2008.  I reckon, the C leg of the multi-year bear market in crude, may have ended with the low of $91.24 on 1/09/2014.  It is worth noting that the 5-wave C leg of the correction began with a high of $114.18 on 4/29/2011.  It’s been a flat but well defined 5-wave, flat with a gently upward sloping upward bias, correction which betrays a strong bullish bias to the commodity in the long term.

 

 

Crude has rallied from a low of $91.2 to a high of $105 and retraced 50% of the rise in the following correction. Crude may see another brief correction on rallying back to $105 from the current level of $101.67.

 

Crude is currently above both its 50 and 200 DMAs. Oscillators are in neutral zone, while the 50 DMA is about to trigger a bullish penetration of the 200 DMA. Crude appears headed for a first target of $105, and following a correction from there, a higher target of $110. I think a confirmed break above $105 will see huge accumulation in crude commence.

 

 

 

$DXY:

 

290314_DXY_Weekly

 

 

 

There is nothing like a long-term weekly currency chart for perspective.  Given the end of the bear market in commodities [except precious metals] it is interesting to see how  $DXY is positioned on long-tem charts.

 

 

DXY made a low of 72.86 on 5/04/2011 and rallied to a top of 84.485 on 7/09/2013.  The rally up traced a classic A-B-C wave up.  DXY has been correcting ever since but has always found support at 78.80 that happens to be 50% of the rise recorded in the last bullish leg up.

 

My sense is that the correction in DXY from its recent bull high continues and we may be in the last leg of the ongoing correction.

 

DXY made its last low of 79.438 on 3/14/2014 and has since rallied to a high of 80.5050 on 3/202014.  It is currently positioned at 80.335, a notch below its 50 DMA and well below its 200 DMA.  My sense is that DXY will drift down to retest 78.50 level by end of May, 2014 before it makes up its mind to rally from there.

 

 

 

 

 

 

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Why #Aadhar was spiked: DCT as a disruptive innovation

March 27, 2014 Leave a comment

This was written in November, 2012 but got spiked.

 

 

DCT as a disruptive innovation

Imagine yourself as a 20s something, male or female, who has graduated out of the local college in a northern cowbelt town of some 2 to 5 lac inhabitants, with a degree in arts, science or commerce. How do you find a job?

A lot of people will at this point cite competitive exams for entry into some kind of government service. These jobs, much preferred for their cradle to grave job security with no professional risks, account for barely 3 to 4% of all jobs available. Assume our lad or lass is a median student and hasn’t had much luck with such exams. What then? How are 96% of the jobs that our economy creates parceled out to the youth? What is the recruitment process here? How does our young 20s something himself or herself a job in real life under such a setting?

Barring a handful of private sector jobs in the top 1000 or so corporations in the country, that account perhaps for another 5% of the total jobs apart from government, we have no formal process of recruitment for the balance 90% of jobs open to a young person starting out in life. Our employment exchanges are in shambles and of little use here; most don’t exist in small towns. There is perhaps a rice processing mill or two in the town I have in mind as I write this, a soybean processing plant that’s doing very well, 20 odd small scale industries that make equipment for farming, dozens of motor bike & truck repair shops, kirana shops, mandis, half a dozen hotels catering to tourists, bus & truck operators, a stone processing quarry and an army of babus that “runs” the district. How do you find a career in this small world, especially as the 4 colleges churn out some 3000 students like you every year looking for the same jobs?

Apply, apply and wait for reply? It doesn’t work. In such a setting the only way to get a job, admit it or not, is to work through the family network. Word goes out that you are looking for a job. Your dad will be very grateful to who-so-ever in his circle of relatives, friends, associates can offer one or route you to one. These networks of contacts work within a community of contacts. They may spill across caste, religion, income and other dividers but, by and large, they are local, community based and closely observes the general “biradri” barriers. As shorthand, you may call these the patronage networks, and these are pervasive. They help organize your social, economic, and political life. They broadly determine where you will work, what you will earn and whom you will marry. The only way to escape the clutches of this system is to either drop out of society or to excel at school & find a job via a competitive exam. Barely 10% of the young can do so. The rest have no option but to opt in – willy-nilly.

You just cannot overstate the power of these local patronage networks. They aren’t monolithic. In fact many compete with each other. Most, if not all, are organized around a caste, or an alliance of castes. Each has community leaders, usually established businessmen in various trades; wealth & income marks out the true leaders. Members are expected to observe the unwritten rules, be it priority in hiring members or marrying members. There is considerable leeway in specifics but broadly the discipline is enforced through the threat of social ostracization. Sure you can hire somebody from another caste but if there is an objection you may have difficulty finding the right groom for your daughter years later. It is not easy to break ranks, which is why we outsiders in metros fail to appreciate the strong ties of caste groupings that bind small town communities. We are lucky to have escaped them.

Throw in the subsidies by Direct Cash Transfers into this milieu and you disrupt an age-old system that ruled life howsoever iniquitously. The social and political power of the leaders of this parsonage system is grounded in economics. They own the most valuable income generating assets; they control access to jobs and your share in that income and you cannot survive for very long if you are cutoff from that income. DCT gives the poor breathing space independent of the patronage network. That is critical to the bargaining power of job seekers because you don’t have to jump at the first job available or sell yourself cheap. It is this loss of power over the young, and through them over the poor, which will begin the end of these caste based patronage networks even more quickly than the spread of education has so far.

DCT subsides should not be in perpetuity. These should have a time limit – say 2 years per family after which they should be discontinued to avoid permanent dependence on dole. Subsidies to the poor are necessary for two reasons. Firstly, subsidies to the utterly poor rekindle hope and initiative in them. A man scrounging for food cannot lift his head to upgrade his skills or even look for a job. Subsidies give him or her the luxury of time to find an income-generating slot in the ecosystem. Such people do exist but are very few in number.

The second, and more pervasive, effect of subsidies to raise wages for all, not just those targeted for subsidies. Now I am not aware of any study that has examined the impact of this aspect in the Indian milieu. To the extent government thinks wages at the bottom of the pyramid are too low, DCT subsidies will help raise the wage levels for all of labor at the lower rungs of the social ladder. But a bout of wage inflation is inevitable and the government must have a strategy in place to counter that deleterious side effect.

The big untested assumption here is that wages at the bottom of the pyramid are too low. To the best of my knowledge, this assumption hasn’t been validated and we have admixture of two things here. One very poor people unable or incapable of participating in a market economy without help and people who need support during a bad period in order to find a job or other source of income. Government will have to segregate the two groups and devise measures to deal with them separately.

The other group of very powerful people who will keenly feel the disruption in established power structures is the local bureaucracy. This class is pretty used to intercepting a portion of any subsidy aimed at the poor. Not only will they be disintermediated but will also lose their hold on the patronage system. Babudom in general works very closely with the trader or merchant class in small towns and these very people are generally the community leaders of their caste groups. The potential for active collaboration between lower reaches of the bureaucracy and the patronage network leaders is pretty high and the government will have to work out counter strategies.

All in all, subsidies by DCT will alter the power equations in villages and small towns significantly. If the effect of such disruption is benign and benefits the poor, the Congress can expect a rich harvest of votes. But the potential and incentive for sabotaging the new system is very high. Efficacy in local implementation will make or mar this disruptive innovation. If the Congress plans to make it the game-changer for 2014, it will need a highly effective political campaign at the local level to ensure implementation is fair, inclusive and effective without intermediation by the very people who seek to defeat it.

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MARKET NOTES: WORLD EQUITY MARKETS 19.01.2014

January 21, 2014 Leave a comment

MARKET NOTES:  WORLD EQUITY MARKETS 19.01.2014

 

World Equity markets continue to exude cheer reflecting modest growth in the global economy accompanied by fairly lose and benign monetary conditions.  Shanghai is an exception as authorities grapple with the problem of excessive speculation in asset prices financed via the Dollar carry trade.  It is not a bubble that lends itself to easy resolution.

 

Back in India, NIFTY continues to climb a wall of worry as general elections loom, fiscal deficit surges and the current account deficit is barely under control following subdued gold & crude prices.  This largely reflects the fact that much of the negativity was already in the price.  All said & done, Indian GDP continues to grow at 5% plus rate and a financial bankruptcy on the external account is a still remote event.

 

Under the hood, there is considerable churn in stock in the US & European markets.  Should the interest rate curve start sloping upwards reflecting normal real growth, the financials will stand to make a lot of money and their valuations are pretty cheap given the bad patch they have had since the year 2000.  Look for values in this sector for further impetus to S&P 500.

 

 

Happy trading.

 

 

 

 

 

 

 

S&P 500:

190114 SPY

 

 

Some people have asked for analysis focused on the near-term.  So presenting the hourly chart in $SPY above.

 

 

To my mind, the drop from 184.75 on 31st December to 181.25 on 14th January corrected the run up from 177 to 184.75.  $SPY has since rallied to high of 184.85 and is now correcting for that run up.  I would be greatly surprised if the bulls yielded the gap just below 183.50 to the bears in this correction.  Following the gap there is much more robust support at 183.

 

I would expect $SPY to resume its rally in the next to 184.25 and beyond.  There is really nothing bearish on the charts so on the charts as long as 181 level holds.

 

Nasdaq 100:

190114 $NDX

 

 

The near term picture for the Nasdaq 100 [$NDX] is similar to that of $SPY. 

 

 

In my view, the drop from 3591.25 to 3500 corrected the run up from 3430 to 3591.25.  $NDX then went on to make a new high of 3610 and is currently correcting for that run up.  First support lies at 3580, which held up on first test on 17th January.  More support exists at 3570 followed by that at 3540.

 

My sense is that the gap between 3580 and 3590 will not be filled here and the index is likely to rally sharply to new highs beyond 3617.  Position traders may like to keep their stops just below 3520.

 

Nothing remotely bearish on the index as such but under the hood tech stocks are showing some signs of exhaustion.  On the other hand financials are likely at the beginning of a fresh surge up.  So do take a look at what you hold than just the index.

 

 

NIKKEI 225:

 

190114 NIKKEI 225

 

 

Nikkei is in a very strong uptrend with first target of 16,700.  I think the Index intends to clear the previous high of 18,260 in the next 12 to 18 months.  That said, 16.700 would be a fairly formidable overhead resistance.

 

 

Nikkei made a high of 16320.22 on 12/30/2013 and has been correcting since then.  Its 50 DMA is currently at 15,368, which should act a support and has been tested successful once.  Further support lies at 15150 followed by a more robust floor at 14800.  My sense is that 15350 floor is unlikely to be taken out in this correction.

 

 

On the other hand I see a high probability that Nikkei may stage a very sharp rally to just under 16,700 and correct from there in a fairly complex move.  The next few weeks are for consolidation.  But my sense is that consolidation will happen in a higher trading range of 15,800 to 16,700 rather than the current one.  Nothing bearish about the Index.

 

DAX:

190114 DAX

 

 

$DAX is in a strong uptrend that will see very brief though sharp corrections over the next two weeks.  The Index is targeting 10,000 plus before the end of May.

 

There will be a bit of consolidation before the index makes a bid for 10,000 and my sense is that having seen a sharp running correction from 2nd December to 14th January, the index is more likely to spike up to just under 10,000 early next week and then consolidate a bit above 9700 for a week or two before making another attempt at the target.

 

 

Day to day plays isn’t my forte.  Simply don’t have access to the kind of data necessary for a proper analysis of the technical play.  So take the above with a bit of caution.  However, I am pretty much confident that [a] 10,000 will be taken out much before May and [b] it won’t be taken out at first or second attempt.

 

Position traders should hold with a stop under 9700.  There is nothing bearish in the index yet.  And all indications are for an early take down of 10,000.

 

 

 

Shanghai Composite:

 

190114 Shanghai Comp

 

 

Among the major world equity markets Shanghai continues to be the most unambiguously bearish.  The Shanghai Composite Index appears headed for a retest of its major floor at 1660 by end of May.  There may be minor corrections on the way but the direction is clear enough.

 

The other noteworthy technical event is the generation of a clear sell signal so late in the bear market with the 50 DMA moving well below the 200 DMA.  I wonder what the market knows what we don’t.  Avoid calling a bottom on this one.  Wait for clear capitulation.  In the near term the index is clearly oversold and could pause a bit.  But the respite won’t last long.  Make a buy list but wait for capitulation.

 

 

NSE NIFTY:

 

190114 NSE NIFTY

 

 

 

 

 

NSE NIFTY appears to be climbing a wall of worry what with the Indian economy being ringed with huge fundamental problems at the macro level.  But then markets have been so hammered in recent years 6 years of a bear market that I for one wouldn’t question the market’s wisdom.  This blog is just about technicals and the message from them is one of cheer.  The markets are headed up though only they know why!

 

The NIFTY made a technical low of 5118.85 on 8/28/2014 and in many ways it can be said to have marked the end of the bear market that began with the crash of January 2008.

 

The NIFTY has been in uptrend since then making a high of 6342.95 on 11/03/2013.  It went into a sideways correction since then and to my way of reckoning, the correction to the run up from 8/28/2013 to 11/03/2013 ended 1/08/2014 at the low of 6160.35, making for a fairy shallow correction to the indices.

 

Since then the Index has rallied to high of 6346.50 and has fallen back a bit from there.  The correction is minor and to be expected as the index can be expected to take 3 or 4 attempts to break free to new all time highs.  My sense is that we could well see NIFTY at 6600 by the end of May or just before India goes into polls for a new government.

 

 

Nothing bearish in the NIFTY as far as technicals go.  I would keep a sharp stop loss at 6100.

 

 

 

 

BSE Small Caps:

 

190114 BSE Small Caps

 

 

 

 

 

 

The BSE Small Caps Index [BSCI] made a low of 5100 on 8/28/2013 and rallied from there to a high of 6145 on 11/08/2013.  It went into a running correction from that point but continued upwards and it is possible that the running correction ended 1/17/2014 although the possibility of another test of the 50 DMA at 6270 in the next 10 days should not be ruled out.

 

The index’s 50 DMA crossed over above the 200 DMA on 12/03/2013.  Currently the Index is at 6476.76, well above the 50 DMA as well as the 200 DMA at 5851.25.

 

The Index Price ROC is in oversold territory.  I expect the index to head for highs beyond the 6750 level.  The steepness of the rally is largely owed to the way stocks were hammered on the way down.  Having said that, there is nothing bearish on the charts.  I would expect a clear breakout of the small cap index above 7700 by May end or before elections.

 

Stay with liquid stocks when dabbling in small caps.

 

 

 

 

Categories: $-INR, Economy, Markets