Thursday, October 1, 2015

PM Modi - India's frequent flyer

The Indian Prime minister has been going around the world quite a lot since he took over. In general, the Indian media portray him positively. There is an illusion that the country cannot prosper without the foreign investments, and they can come in only if the PM reaches out to them in their country and shook their hands, convince them to invest in India.

The recent one is Prime Minister Narendra Modi's US visit particularly to the bay area. Rubbing shoulders with the top silicon valley CEOs. and maintaining huge optimism for the future. This also highlights how far the country has moved on from a socialist democracy to a corporate democracy. Few years back - an Indian politician wouldn't like to be pictured with really rich corporate CEOs. Not sure, if things has changed recently. May be the people are just watching out without a voice. In classic CEO style, the PM was optimistic. Have you ever heard a CEO being pessimistic ? Dick Fuld was optimistic about Lehman brothers until the last day, it went belly-up. Optimism about the future is particularly not a bad thing. But being publicly very optimistic just before a big crisis would be na├»ve on a world leader. Probably if its just a bad timing. Only time will say, if its a PR flop for the Prime minister's himself.

With the cheap money flowing in all directions around the world, thanks to the Fed which maintains zero percent interest rate and the ECB that is doing QEs. Things are really hot than what it ought to be. Almost seven years of ultra loose monetary policy with at least 3 QEs has created huge bubbles not only in the western world but also in Emerging markets. Market are addicted to this easy money right now. The Fed confirmed its fear by not raising the interest rate to 0.25 basis points  this month - which most market watchers expected. This raises the question - Do they know something that the rest doesn't?
The whole so called recovery would come down crashing when interest rates start to rise. The Fed knows it. It is impossible to believe - the US economy is not in a bubble. The most obvious indicators
  1. Tech-centric NASDAQ hovering around the 5000 mark
  2. Housing prices at historic highs even though home ownership is at its multi-decade lows
  3. Stock Market - Dow and the broader S&P at its historic highs.
Previously the NASDAQ was at the 5000 mark just before the dotcom burst in 2000.
Housing prices hit the peak in the US, in late 2006 before the house prices crashed that created the great recession in 2008.
Stock Market highs has historically been signs of downturn. The more it rose, the bigger the fall.

There is ample evidence the air might come out of the bubble anytime.

India is no exception to this crisis. Valuations of start-ups are mind boggling. Recent example is OLA running into few thousands of crores. You really have to be a fool to believe OLA is worth that much. All they have is a mobile App and a network of drivers. It is not hard for anyone to compete with them. I am sure the taxi service industry would be diluted. Do they add value to the society? Of course they do. Are they really worth so much money. Definitely not.

The cheap western money is flooding markets in India. The start-up valuations are just a reflection of that. When the easy money tap is closed, the flow dries out gradually. The reality would set-in, and bad business ideas would be very hurt. Businesses cannot be run on valuations. They always have run on value addition for customers and their resulting profits.

With these gloom and doom hanging over the world economy, the PM probably choose a bad time to go with the silicon valley crowd. It looks he himself is probably in a bubble. Real growth comes from within. Foreign money should flow in based on growth and confidence in our country. Not by pep talks. What matters is the nuts and bolts of what is happening in the country and how to improve that. The audience in San Jose - is probably the persons with different aspirations who will not get us there.

We see in the news today, that a man is killed in a mob attack for storing beef meat at home. This has happened few miles from Delhi, and this is exactly what the PM should be fixing. Some people of his own affiliations are involved in this presumably. This is a criminal act and it needs punishment for murder. With ridiculous things like this happening in our backyard - wonder what is the PM doing in San Jose entertaining a crowd with intangible talks. I am not sure how his party or himself can sell this to the ordinary Indian out there who is yet to get sufficient drinking water, electricity in his home that sits on a bad, dusty road.

It is possible, the Modi bubble would burst before the monetary bubble the world central banks has created. With this time in history - the PM has to be articulate and clear hurdles in how India works. Only those will make this country prosperous. All he needs to do is deliver on his promises here. I really wish he succeeds., but the performances so far since June 14' is just simply pathetic.  Just like in a bubble - there is more hot air than real substance in governance.

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