Tuesday, March 3, 2009

Brad Setser Censors pro-equities comments

Dr. Brad Setser runs a propaganda blog where the main point is something that goes like:
1) There can't free trade, there can only be 'balanced trade'.
2) Even if the US dollar is just a legal tender currency, China accumulates US dollars in lieu of gold, in a mercantilist manner.
3) Countries use money to 'finance the current account deficit', even when they're spending it mainly on military contracts.
Here are some objectives views about markets; these are just a small subset of various opposite views that have been censored by Dr. Setser. Since Setser runs a propaganda blog, he can't afford to have views opposing his malinterpretations gain traction at his blog page.
The Nifty peak was around 6300 in 2008, and its trough was at 2500 which was hit in October and then again in November after a dead cat bounce. The Q3 FY 2008-2009 results didn’t lead to fall below the October lows. Today’s Sensex close is lower than its October low and the Nifty is a few percent above 2500 because of different weightages.What caused the fall from 6300 to 2500? India’s exports, both merchandise and services have fallen. Imports, on the other hand have been rising, especially fertilizer and capital equipment.The real reason for the Nifty fall was that FIIs steadily sold out each month in 2008, while Domestic IIs were net buyers each month. The last two days’ fall is also a result of massive FII outflows.The INR/USD has shown a strengthening of USD against INR. Private sector banks like ICICI have something like 50% of their borrowings abroad. That has been unwinding, and not rolled over. Add up the effect of not rolling over foreign currency loans, and a sell-off of FII holdings in local equities; In my humble opinion, that explains much more of the fall in equities and weakening of the INR than a fall in real economy exports, etc.I’m expecting a functioning credit system to emerge in the US, which will lead to the reverse of the above flows.Outstanding credit has been growing in India, just as it has been in China. India is an exception to the theory that emerging markets grew mainly through exports, especially exports to the US.India’s external sector has been making a net negative contribution to GDP, while the GDP has been growing at 8-9%. While falling exports will have a negative effect, India’s GDP growth wasn’t ‘export-led’ by comparable standards.Also, this should make you think about the component of China’s growth that came from domestic expansion, though China does have a much larger share of exports in GDP, and a sizeable trade surplus, justifying the notion that exports contributed a lot to China’s GDP growth.All this doesn’t mean that India is shining. The policy makers in every country give statistical nostrums to the people. In a country with millions of uneducated or undereducated people; an agricultural sector that depends on rainfall because of the government’s inability to dig irrigation channels;etc … Consider an African American who is now paid 5 cents a day in addition to food and shelter because Lincoln abolished slavery. When his income grows to 6 cents a day over 5 years, his macroeconomy has grown 8% percent over those years!

1 comment: