2012 - Reforming the Status Quo

No wonder what the Mayan Calendar says about the world coming to an end in 2012; no wonder what the economists or trade pundits predict about the economy; for common men like me 2012 marks the beginning of reformation. Strange ?! Let's retrospect as to how the year 2011 ended...

• The INR faced the wrath of the appreciating US Dollar, with the exchange rate touching to an all time low of around Rs.54/- per $1 - thanks to the phenomenon of the Debt Crises and Arab Uprising - investors started to withdraw their money from the stock markets.
• Share markets becoming bearish, touching the 15000 mark as the year ended with the Indian GDP rate falling to 6.9%.
• Inflation - the contemporary economic witch (daayan).
• Gold touched an all time high of about Rs.29,000/- with prices still hovering between the 25k-28k mark - thanks to the lost faith in the USD time and again.
• The Indian polity's worst year in the recent past - FDI in multi brand retail (yes/no); corruption (yes/yes); profits to the Swiss Bank(many folds); downgraded politic games (yes/yes).
• Rising fuel prices - blame it on the Arab world.
• Hovering fear of another Global Recession !!!

The world economy has faced its worst fears in 2011 and the last point is enough to throw light on the state of affairs of the world economy. We entered 2012 with almost all of the aforesaid points still making their presence felt.

If this was not enough; some economists predict that the INR might touch the Rs.60/- per $1 mark by March 2012; and the share market falling to a new record low of 12000.

No matter what the world says; the "dear optimist" still believes in the theory of the BUBBLE. No one can really predict where an economy might land as time passes, but one thing that one can surely tell is that an ever inflating bubble will reach its limits and ultimately burst.

Here we are talking about "Bubbles" - the extreme points of hopelessness in an economy that 2011 witnessed. The "bubbles" have been inflated to the extremes - what next ?!

What goes up, comes down; the "bubbles" have reached their limits and the optimist predicts that the market will soon begin to normalize naturally. High prices, down markets will revive their status quo and mark a new beginning. 

Though the actual prediction is still impossible, but this post can at least make the reader a little hopeful about the near future.

The Fading Indian Rupee

This is something most of you might have been reading in newspapers and watching on news channels. The depreciating INR is sending a chill down the spine of the government (the economy), the corporate and economists alike. Though the common man would be least bothered about the "depreciation" of our currency, its effects on the economy and us are proving to be deleterious.

Let's try to analyse the case colloquially :

Let's begin with some factual numbers -

As of today : 1 USD = Rs. 51.3
Meaning you need to shell out Rs.51.3 to buy the resilient USD.

The same rate pondered between Rs. 40-45, when the world economy was travelling on a safe road; meaning you had to pay Rs.40-45 to buy $1.

The government understands the dismal effects of such numbers; the industrialists yearn to keep such numbers only in their wildest dreams; the economists hold a neutral stance ( it's study gives them jobs ); what about us ?!

The common man just takes a vituperative stance - accusing the government of their unending predicament - inflation, petrol prices - 2 of the common man's biggest problems. Well, the graft loving Indian government surely does have a role to play; but one of the major reasons lies in the fluctuating dollar-rupee exchange curve.
In such a case all we can do is to become silent spectators of the ongoing turbulence in the markets.

• Withdrawal of money from the stock market : With the current state of affairs in Europe, the probability of a Greek default, or may be even Italian default - has forced investors to withdraw their money from the Indian equity market and invest them in some safer instruments. Some investors are even keeping hold of their dollar reserve to avoid any risk of losing their money - thanks to AA US Credit rating.
• Indian economic commotion : Rising fuel prices, inflation - the top contributors to the investors apathy towards Indian markets.

Stock market bears the brunt of the aforesaid reasons. The stock prices decline -> equity in the form of USD starts vanishing -> INR comes under pressure -> INR Depreciates -> Prices of goods & services rise -> Dissatisfaction among consumers -> Blogger like me get a chance to present our views !!

So tomorrow, if you think you are going to accuse the government 'wholly' for your plight, think twice and just hope for a better INR vs USD exchange price.

Note : The views are personal. An effort has been made to explain the posts in the simplest of ways possible.

GREECE'S WOES - The Economist

A must read article from The Economist :

Greece's Woes

The Renminbi VS The US Dollar

It's the season of crisis and some more crisis; socio-political-economical; the world is witnessing its share of miracles and news that just make things astonishingly worse or may be good for some.

And when it comes to miracles; how can we forget the nation that taught the world its art of duplicating miracles !

The Red Republic - CHINA - most populous yet the most robust economy of today's world.

The Monarch State's economic growth - when the entire west is under the sulky clouds of debt crises and recession fears; the Dragon continues to roar and just doesn't seem to stop.

And why not;  Chinese products have become the part & parcel of everyone's lives today. 1.3trillion USD Forex reserve - the largest holder of the world's reserve currency; China has it's reasons to outshine every other economy.

And today with the US state of economic affairs in jeopardy, the world's trust on it's reserve currency the USD is slowly declining.

"WHY TRADE WITH THE OTHER COUNTRIES IN A CURRENCY THAT BELONGS TO A THIRD COUNTRY." - that's what the "little eyed dragons" have started thinking !

USD rate high or USD rate low ( wrt to the aborigine currency); the positive & negative impacts on exports & imports are quite obvious.

Let's take the example of trade between India & China:

Today when China has to export or import goods from India ( or vice versa); both countries have to deal in USD; and the market price of the USD ( compared to their native currency) is the deciding factor of the amounts of profits & losses.

So what's the standing of the RENMINBI compared to the USD today.

• The world is losing faith in the USD.
• Chinese economy is the most robust economy of today = RENMINBI can be trusted when it comes to international trade.
• The Chinese are anyways manipulating the exchange rates of the RENMINBI compared to the USD by printing & bringing more currency notes in the market.
• An appreciating RENMINBI compared to the USD will ensure China's stronghold on the world economic platform.
• With RENMINBI replacing USD; the right side nations of the Atlantic ocean will become the leaders of the modern economy.
• Chinese trade with the rest of the world in RENMINBI will make it's already robust economy even more rigid.
• With CHINA leading from the front - it's say in the world economic matters can never be neglected.

The bottom-line of the above write-up is :

USD's reign is slowly diminishing; the dragon's fire product - the RENMINBI in the coming years might very well replace Uncle Sam's green "enviable" piece of paper !

NOTE : All ideas expressed are my personal views. 

For suggestions & queries - contact me : nakul.r90@gmail.com

THE EMERGING INDIAN MARKET - a photographic glimpse

THE INDIAN MARKET

$ The Ailing US Dollar $

The season of economic crises is writing an epitaph for some of the most trusted entities in the world markets. US Dollar - one of the most resilient and the reserve currency of the world seems to be in grave danger. I will present my personal colloquial views on the same very soon. But for the time being, I couldn't help but share this self explanatory article from the 'Wall Street Journal'.

Why the Dollar's Reign Is Near an End


The article explains why the world chose the USD as its reserve currency and gives some of the possible reasons as to why the next decade will see the birth of a new reserve currency.


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'Demand - Supply Cycle' & Effects

Demand & Supply; two very simple words that have been popping up a lot in just about every news or magazine article. Thanks to the current economic doldrums, the words that seemed so simple are actually turning out to be much more than what their literary meanings connote.

So I have analysed some of the most basic yet essential (for an economy) impacts of the 'Demand - Supply Curve'; that are making up news and leading the world markets into a turbulent phase.

I shall make up my own headlines and try to explain them one by one.

• INFLATION - The most searched word on the net !

So what has the demand supply curve got to do with inflation ?

Well the root cause of inflation lies here itself. Discrepancies in the 'demand supply curve' gives rise to Inflation. How? Let's understand in simple words:

Imagine the DEMAND for goods & services increases; SUPPLY of goods & services on the other hand falls short to pacify the demand.

RESULT : To check the increasing demand; price of goods & services increase bringing the DEMAND SUPPLY CURVE in perspective; resulting in INFLATION.

What if the SUPPLY increases and DEMAND decreases - DEFLATION !!! Decrease in prices ! That has been a dream for just about every common man.

• US DOLLAR VS INDIAN RUPEE : The war not won !

Okay, let me put it this way; the price of $1 has been fluctuating a lot of late, mainly between Rs.43-Rs.50 (past 5 yrs).

Reasons for such fluctuations are countless, but again 'demand - supply' plays a good role here. The USD is the reserve currency of the world - implying that the equity floating in the markets is in the form of USD. Considering the Indian market, more the investment in the market, more will be the amount of USD flowing in; more & more USD means SUPPLY is more, when the DEMAND is still the same.

More SUPPLY, less DEMAND - Value of INR appreciates ( eg. from Rs.45 to Rs.43).

Similarly, when the investment is less or the investors start withdrawing their money, USD volume decreases; implies the SUPPLY decreases which eventually means an increase in DEMAND - And INR depreciates (eg. Rs.45 to Rs.49); which is the current status of INR.


With the commotion in the world market and the news of an oncoming recession, FIIs have decreased, resulting in the INR depreciating in value.

• SHARE MARKET : The commotion that never ends !

Alright ! Recession or no recession; the share market plays its fair share of unpredictable Bull & Bear fight. Now what has the 'demand - supply cycle' got to do here ? Well the idea was presented a few lines above, but now I shall elucidate.

Okay, the world market can never be truly understood. What topples it, or what pacifies it; no clear picture ! But one thing's for sure, even the slightest of rumours can lead to a decline in the share prices.

The current economic scenario has done quite a similar thing.

US & EU Crises; JAPANESE earthquake; investors have never felt such risks in the past decade. Eventually, they have started withdrawing their funds from the share markets, selling them to overcome their fear of losing their money. Also, FIIs have decreased; leading to a decrease in the amount of USD floating in the share market.

Now less money = less share prices = the current situation !

SO THE NEXT TIME YOU COME ACROSS 'DEMAND & SUPPLY' (the words); KEEP IN MIND THAT IT'S THE SIMPLE THINGS IN LIFE THAT ARE ACTUALLY THE ONES TO BE CAUTIOUS OF !!