Let’s talk markets first.
Stock markets continue to swing from one record to the next, oblivious of all negative triggers – higher bond yields in the United States, a stronger dollar, higher oil prices, and a weaker rupee. Banks, including State Bank of India and other state-run lenders, habitual laggards in the market, have also started to participate in the so far gravity-defying rally.
The public market exuberance is matched by the private markets, too. In the first half of the calendar year alone, India had attracted close to $12 billion in private equity funding, according to data from Refinitiv. The numbers would have climbed since then.
As Credit Suisse’s Neelkanth Mishra writes in this article in the Indian Express, in financial markets, “herd behaviour” is a warning sign. If people are investing because their neighbour or competitor is, eventually, that can become a problem. Of course, in the near term, the availability of capital helps but we know what they say about “too much of a good thing”…
You can’t help be reminded of the existential question from Hitchhiker’s – The Answer to the Ultimate Question of Life, the Universe, and Everything. Here’s how the conversation went:
Fook & Lunkwill: Deep Thought, we want you to tell us the answer.
Deep Thought: The answer to what?
Fook & Lunkwill: Life; The Universe; Everything! Can you do it?
Deep Thought: Yes, I can do it. There is an answer but I’ll have to think about it?
Fook & Lunkwill: How long?
Fook & Lunkwill: Seven and a half million years.
It may take us somewhere in that vicinity to answer why markets do what they do. And in the end, the answer may just be 42.
This week also saw the International Monetary Fund release its latest prognosis on the global economy. It brought down its global growth forecast cautioning against a “dangerous divergence”, although India’s outlook was left unchanged. The IMF also warned central bankers to be “very, very vigilant” over rising inflation risks.
The juggling act between growth and inflation has kept central banks busy for a long time now and it’s almost like if they find an answer to the dilemma, they will have little reason to exist.
Just like Hitchiker’s said: “There is a theory which states that if ever anyone discovers exactly what the Universe is for and why it is here, it will instantly disappear and be replaced by something even more bizarre and inexplicable. There is another theory which states that this has already happened.”
That more “bizarre and inexplicable something” may just be the crypto universe. The IMF once again reiterated its warning against cryptoisation this week, saying that it may threaten financial stability. The Bank of England went a step further, as Deputy Governor Sir Jon Cunliffe cautioned that crytocurrencies could be the cause of the next global financial crisis.
Globally and locally, the crypto juggernaut rolls on. The ecosystem is growing rapidly, drawing in Bollywood stars and perhaps even star investment managers soon enough. Salman Khan’s newly minted NFTs or ‘bollycoins‘ apparently drew investors in the millions within hours.
A conversation from Hitchhiker’s can quite easily be adapted to one between central bankers or traditional finance proponents and crypto enthusiasts. It goes something like this.
“On the planet Earth, man had always assumed that he was more intelligent than dolphins because he had achieved so much—the wheel, New York, wars and so on—whilst all the dolphins had ever done was muck about in the water having a good time. But conversely, the dolphins had always believed that they were far more intelligent than man—for precisely the same reasons.”
Meanwhile, policymakers, at least in India, are continuing to act like deer caught in the headlights. We keep waiting for them to act but they don’t. “For a moment, nothing happened. And then, after a second or so, nothing continued to happen.”
Enjoy the festivities ahead. So long and thanks for all the fish.