Classifying my text

I took a few of my recent newspaper columns and fed them to http://www.typealyzer.com. I had hoped there would be a simple classification that would help you, gentle genius reader, know what you get by reading this blog. I found there is one mode -- `The Scientists' -- but I must be schizophrenic because there are all sorts of other categories also.

The Scientists

A new wave of infrastructure spending?, 21 November; The US dollar is an unstable yardstick, 10 November; Why the crisis got worse, 10 October; Reversing the capital controls against PNs, 8 October; Rethink the role of OTC derivatives, 27 September; India's inflation problem, 2 September

get classified as INTJ - The Scientists.

The long-range thinking and individualistic type. They are especially good at looking at almost anything and figuring out a way of improving it - often with a highly creative and imaginative touch. They are intellectually curious and daring, but might be pshysically hesitant to try new things.

The Scientists enjoy theoretical work that allows them to use their strong minds and bold creativity. Since they tend to be so abstract and theoretical in their communication they often have a problem communcating their visions to other people and need to learn patience and use conrete examples. Since they are extremly good at concentrating they often have no trouble working alone.

The Duty Fulfillers

Will the money market go into Crisis #3?, 5 November; The Indian response to the global crisis, 21 October

get classified as ISTJ - The Duty Fulfillers.

The responsible and hardworking type. They are especially attuned to the details of life and are careful about getting the facts right. Conservative by nature they are often reluctant to take any risks whatsoever.

The Duty Fulfillers are happy to be let alone and to be able to work in their own pace. They know what they have to do and how to do it.

The Thinkers

Will globalisation come apart?, 9 September

gets classified as INTP - The Thinkers.

The logical and analytical type. They are especialy attuned to difficult creative and intellectual challenges and always look for something more complex to dig into. They are great at finding subtle connections between things and imagine far-reaching implications.

They enjoy working with complex things using a lot of concepts and imaginative models of reality. Since they are not very good at seeing and understanding the needs of other people, they might come across as arrogant, impatient and insensitive to people that need some time to understand what they are talking about.

The Mechanics

The question for the next RBI governor, 27 August

gets classified as ISTP - The Mechanics.

The independent and problem-solving type. They are especially attuned to the demands of the moment are masters of responding to challenges that arise spontaneously. They generally prefer to think things out for themselves and often avoid inter-personal conflicts.

The Mechanics enjoy working together with other independent and highly skilled people and often like seek fun and action both in their work and personal life. They enjoy adventure and risk such as in driving race cars or working as policemen and firefighters.

The Guardians

Why ban short selling?, 27 October

get classified as ESTJ - The Guardians.

The organizing and efficient type. They are especially attuned to setting goals and managing available resources to get the job done. Once they've made up their mind on something, it can be quite difficult to convince otherwise. They listen to hard facts and can have a hard time accepting new or innovative ways of doing things.

The Guardians are often happy working in highly structured work environments where everyone knows the rules of the job. They respect authority and are loyal team players.

The Visionaries

Now, currency futures, 22 August

gets classified as ENTP - The Visionaries.

The charming and trend savvy type. They are especially attuned to the big picture and anticipate trends. They often have sophisticated language skills and come across as witty and social. At the end of the day, however, they are pragmatic decision makers and have a good analytical abilitity.

They enjoy work that lets them use their cleverness, great communication skills and knack for new exciting ventures. They have to look out not to become quitters, since they easily get bored when the creative exciting start-up phase is over.

The Executives

Where we stand on the currency futures, 11 October

gets classified as ENTJ - The Executives.

The direct and assertive type. They are especially attuned to the big picture and how to get things done. They are talented strategic planners, but might come off as insensitive to others needs and appear arrogant. They like to be where the action is and like making bold and sweeping changes in complex situations.

The Executives are happy when their work let them learn and improve themselves and how things work around them. Not beeing very shy about expressing their ideas and often very outgoing they often make excellent public speakers.

A conversation on the US dollar and the Indian rupee

Mint has an audio presentation of a conversation between Samanth Subramanian and me.

Strengthening quarterly disclosure

In India, firms put out very poor information each quarter [example]. Quarterly disclosures in countries like the US are much better [example]. A few days ago, Mahesh Vyas had written about the need for better quarterly data, that would enable understanding the economy better in turbulent times such as this. Today, Jayanth Varma has written a column in Financial Express urging improvement of quarterly disclosures. I disagree with him on doing only 500 companies. Any large firm has the computerised accounting systems to do this. We should cover all listed companies right away.

Brown and TARP: Are they perpetuating the mess we're in?

by Percy S. Mistry, in Financial Express, 25 and 26 November 2008.

Applauded and replicated around the world for its decisiveness and firm action, the Brown Plan for financial system revival is proving to be seriously flawed in three major respects.

First, Brown recapitalised the banking system before we established what the toxic assets residing in the system were worth. Despite a first expensive round of bank recapitalisation we still do not know how much more capital is needed to cope with toxic assets being written down to 'fair value'. That was what the US 'Troubled Assets Recovery Programme (TARP) was to do. Unfortunately, Congress took some time to pass TARP legislation. The anxiety that created, emboldened Brown to steal the US' thunder and come up with an alternative plan for recapitalising banks, to alleviate global public concern about their solvency.

Predictably, that move started a wave of competitive recapitalisations; leaving the US in danger of a massive shift in global deposits from American to non-American banks. To prevent a debacle, the Fed-UST followed suit and went for premature recapitalisations in the US as well, using the US$700 bn for a different purpose to that for which it was originally approved.

Sadly, Brown jettisoned the reverse auction and asset reconstruction (ARC) features of TARP. These two mechanisms were indispensable. An ARC would have bought toxic assets at a discount and accumulated them in one place. That would have allowed them to be de-synthesised and re-bundled into more appropriate packages with more transparent risks. In other words, an ARC could have separated out sub-prime loans made to immigrant gardeners, from better quality loans to multiplexes, shopping malls, and office buildings. That would have allowed toxic assets to be rearranged, revalued and repriced more acceptably.

Eventually such transformed assets would have been sold back in financial markets at prices resulting in a profit for theARC on the spread between discounts at which they were bought and later sold. But, the speed with which the Brown Plan was replicated globally prevented this essential purgative from working. As a consequence, we are now left with toxic assets still on the books of global banks. They are perpetuating everyone's concerns, not least those of the banks themselves, about the credibility of their balance sheets and their 'real' solvency. That is continuing to impede inter-bank trust and unsecured interbank lending for all purposes including trade credit which is drying up.

To illustrate, the aggregate amount of toxic assets remaining on bank books are estimated to be around US$3 trillion. The fire-sale price at which Merrill Lynch sold its toxic book before being taken over by BoA was US$0.22. No one else wanted to sell at that price. Using the usual mathematics, these assets are unlikely to be worth more than US$0.67. But the range of 22-67 US cents is too large for bank managements, regulators, rating agencies or auditors to arrive at a consensus on fair value. At the fire-sale floor price these assets would be worth US$660 billion. That would result in a loss of US$2.34 trillion requiring an equivalent capital write-down for the system. About US$1 trillion has already been written down. A fire-sale price would therefore create further capital funding requirements of $1.34 trillion. On the other hand, at the 67 cents ceiling of that range, the assets would be worth US$2 trillion resulting in a loss of US$1 trillion. That would give much more comfort about the solvency of banks. The reality probably lies somewhere between those limits (45-50 US cents?) which would still create a requirement for a further $500 billion or so in new capital requirements.

To make matters worse, however, even the prime assets of global banks are now becoming shaky as the recession bites. That is increasing NPAs and provisioning as well as write-down requirements,necessitating a second round of capital fortification of an unknown amount. It will accentuate uncertainty on the part of bank managements about how much more risk can be taken by lending in a downturn when household and corporate cash flows are worsening. That will defeat the intent of the recapitalisation exercise: i.e. to get credit flowing easily again.

Second, in providing national guarantees to get banks to lend to one another again in the global unsecured interbank money market, Brown made a cardinal error. The interbank market is a global seamless market in which the largest participants are not just banks,but money market funds, and other holders of cash liquidity such as large corporate treasuries, acceptance houses, pension funds,insurance companies etc. It is not just a national or banking market. National guarantees are a sub-optimal device to get that market working again. They may unblock British banks from lending to one another in London. But they will not unblock them from lending to non-British banks knowing they are not guaranteed.

Even if understandings are such that British banks are comfortable about lending to EU, US and Japanese banks, because of guarantees provided by those other governments, they are still taking unknown risks by lending to non-EU, non-US and non-Japanese banks (i.e. ASEAN, Indian, Chinese, Brazilian, Middle Eastern, African banks etc.). That is the prime reason trade financing in these regions is drying up. Banks around the world are no longer prepared to accept cross-border LCs, packing credits, bills of exchange, import and export credits that involve an uncovered risk. National guarantees need to be pooled and triggered by an international authority to makethe global interbank market work properly again. The world's central banks need to develop instruments enabling them to operate directly in these markets to restore confidence, and make risks in these markets more acceptable, rather than just keep infusing liquidity through banks against any form of collateral. It is not just liquidity that is the problem. It is the continuing lack of confidence within the banking system.

Third, Brown did not address the critical issue of the uncertainty overhang in the credit default swap (CDS) market which restrains banks from lending because of uncertainty about counter-party credit risk at a time of extreme uncertainty. That risk is changing daily. The pricing of CDS' reflects that. Global central banks and regulatory authorities need to get together immediately to create a central clearing corporation for CDS. Outstanding US$33trillion worth of CDS contracts (US$ 3.3 trillion after netting out) identified by the DTCC should be handled by the CCC acting as counterparty to each side of every bilateral OTC deal. Eventually such contracts should be priced and traded on exchanges. Though this seems complex, it can be done more easily than imagined. Unless the CDS market unfreezes quickly it will continue to act as a brake on credit flows no matter how much liquidity is created.

Haste always makes waste. Trying to be too-clever-by-half (a fundamental failing in Brown's psychological make-up that reveals itself every time a crucial juncture is reached) results in his ending up looking daft. Just a month after the Brown Plan was unveiled and propagated it is becoming apparent how half-baked it was. It put a band-aid on an open wound that is still festering. Is it any wonder then that, despite a sense of brief respite after its arrival, the mood has reverted to one of despair, doom and gloom?

Perhaps the market -- in still trying to find that elusive bottom-- is signalling something we are not sufficiently sensitive to. It may be signalling that, despite everything that has been done so far,the market has no intrinsic faith in political leadership anywhere; particularly in the US, UK, EU and Japan. While everyone is looking to governments to prevent collapse and solve the problem, no one has any faith in the political pygmies presently running them. Will the incoming Obama Administration make a difference? One can but hope.

The market has certainly lost faith in banking leadership; India being no exception. It is now losing faith in industrial leadership to put things right. Yesterday's masters of the universe, whether bankers or industrialists, are today's nervous breakdowns. They are asking forhelp of every sort from every government, to cover up for poor strategic decisions and failed business models, without realising what their demands are adding up to. Governments in a panic seem willing to oblige them, regardless of future consequences. Their actions are having unintended consequences (like the USD appreciating when it should be depreciating) that will continue to delay the kind of global adjustment that is so necessary to put this debacle behind us in a decisive fashion.

Crisis watch, 24 November

TED spread	2.15
S&P 500 returns	+6.32%
VIX	72.67
Nikkei 225 (9:11 AM IST)	+2.70%
US Financials index	+3.93%
ICICI Bank ADR	+15.53%
Call rate on 22nd	6.98
Currency futures (9:11 AM IST)	50.1475

• Editorial in Financial Express on SEBI and short selling.
• Mahesh Vyas in Financial Express on the financing of firms.
• Samir Arora in Economic Times on what India does right.
• Rajendra Palande in Hindustan Times on the dollar liquidity required by Indian borrowers in coming months.
• Benn Steil on how to be safe.
• This story from The Economist on Russia is interesting. They are selling reserves in order to defend the currency and have lost monetary policy autonomy owing to this quest for a currency target. In these difficult times, they have raised interest rates to avoid depreciation. It is an interesting demo of what could happen in India if RBI tries to manipulate the exchange rate.
• Joshua Kurlantzick on the interplay between economic crisis and political stress in China.
• Paul Krugman worries about the handover from Bush to Obama.
• Read The Economist on what's happening in the US.
• Daniel Ikenson says that Detroit should not be rescued, and Joshua Rauh and Luigi Zingales have an article A bankruptcy to Save GM suggesting a better bankruptcy mechanism for GM.

It's a scary world out there

Ringed by Foes, Pakistanis Fear the U.S., Too by Jane Perlez, in New York Times pointed me to Blood borders: How a better Middle East would look by Ralph Peters in Armed Forces Journal.

A book, verily a book

India's Financial Markets: An Insider's Guide by Ajay Shah, Susan Thomas, Michael Gorham, Elsevier, 2008. I updated my `Indian economics/finance bookshelf' page. Also see:

• MTEF
• A book review, on CNBC Awaaz.
• There are a few reviews by readers on the Amazon page about the book.
• Gautam Chikermane: summary, and full review.
• Subhomoy Bhattacharjee in Financial Express
• Ashok Desai in Business World.
• A review by P. V. Vishwanath in Journal of Asian Economics.

Setting up a Debt Management Office

The Ministry of Finance has released the Report of the Internal Working Group on Debt Management [press release] [report]. Here are some responses to this report:

• Editorial in Financial Express, 25 November 2008.
• Editorial in Economic Times, 25 November 2008.
• Opinion piece by S. Narayan in Mint, 24 November 2008.
• Shruthi Jayaram in Financial Express, 26 November 2008.
• Ila Patnaik in Indian Express, 20 February 2009.

Belonging

Anand Giridharadas has written a poignant and beautiful piece: India's stepchildren, making their own way home.

Pension administration matters

Successful pension reforms requires a confluence of good policy thinking, good politics and good administration. The latter seems like housekeeping, but it makes all the difference between lofty ideas and actual execution. A key edge of the New Pension System (NPS) was that right from day one (i.e. circa 1999), there was a fully articulated plan for how every detail of administration would be done. The good folks working on NPS implementation at NSDL, PFRDA, the Department of Expenditure, various state governments, etc. should notice that mistakes in pension administration can be a matter of life and death.

Crisis watch, 21 November

TED spread	2.12
S&P 500 returns	-6.71%
VIX	80.86
Nikkei 225 (9:13 AM IST)	-2.22%
US Financials index	-9.7%
ICICI Bank ADR	-9.72%
Call rate on 20thth	6.2189%
Currency futures (9:32 AM IST)	50.51

• I have an article in Financial Express today on the possibilities of enhanced infrastructure spending as a counter-cyclical device. While on this subject, read Ashutosh Kumar in FE today.
• An editorial on the rupee in Financial Express.
• C. B. Bhave on banning short selling; SEBI's statement on ICICI Bank and an edit in Mint.
• The CMIE Monthly Review for November 2008 is at the right hand top here.

Crisis watch, 20 November

TED spread	2.11
S&P 500 returns	-6.12%
VIX	74.26
Nikkei 225 (11:53 AM IST)	-6.21%
US Financials index	-12.61%
ICICI Bank ADR	-13.63
Call rate on 20th
Currency futures (11:53 AM IST)	50.5825

• The ink hadn't dried on the G-20 declaration:

  ...

  Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.

  ...

  13. We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO's Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.

  ...

  and we got new protectionism from Russia, India and the EU. Read Martin Hutchinson from breakingviews.

• Mihir Sharma in Indian Express on the need for new HR policies in government.
• Economists think that price flexibility is a key to macroeconomic adjustment. Here's an example of the fine structure of price flexibility.

The usefulness of academic economics

When Kepler figured out the orbit of the planets, nothing changed in the solar system (though it did pave the way for cool things like spacecraft). But academic research in economics can change the laws of motion of the economy.

There are many other war stories of this nature, particularly from financial economics. One that comes to my mind is the story of the 1986 Eytan/Harpaz paper on pricing a geometric mean of prices index, that is told in this paper by Sam Thomas.

Conversations with economists

Video files from NDTV's Policy with Patnaik.

Crisis watch, 17 November

TED spread	2.10
S&P 500 returns	-4.17%
VIX	66.3
Nikkei 225 (9:20 AM IST)	+1.17%
US Financials index	-5.75%
ICICI Bank ADR	-6.56%
Call rate on 15th	6.58%
Currency futures (9:19 AM IST)	48.99

• RBI moves once again.
• Seven elements of the policy response by Ila Patnaik.
• Editorial in Financial Express on NREG as automatic stabiliser
• Meghnad Desai worries about the fiscal situation of the G-7 in Financial Express.
• Editorial in Financial Express on FMPs.
• Declaration of the G-20.
• Jayanth Varma on financial sector soundness in Financial Express. I also closely watch stock market valuations of banks.
• Some improvements on rules about commodity derivatives transactions by Indian firms on overseas markets.
• Banks seem to have started raising deposit rates in an attempt to hoard liquidity. Also see this story in Hindustan Times.
• M. Govinda Rao in Business Standard on the fiscal position.
• Sugata Ghosh in Economic Times describes how RBI is inching closer to the joys of exchange traded derivatives, away from their traditional bias in favour of OTC derivatives.
• Business Standard gets it on short selling.
• An editorial in Indian Express.
• An editorial on dollar liquidity in Financial Express.
• The House of Tata is making progress on raising some cash. Of the $2.7 billion transaction, roughly a fourth goes into Tata Sons.
• Read and participate in a good discussion on credit rating agencies that was none of my doing.
• John Cochrane on whether this is a good time to buy US equities.
• Article by Richard Milne in Financial Times about how large firms are overcoming the infirmities of banking on the subject of their supply chain.
• Understanding the problem of liquidity by Lasse Heje Pedersen, on voxEU.

Consequences of AML/CFT

I have been a skeptic about anti money laundering and the attack on the `financing of terror'. My logic is that it only cost $100,000 to implement the 9/11 attacks, and this small sum of money can slip around the world in myriad and undetectable ways. As an example, gold is worth $23,661 per kg, and has a density of 19.3 g/cc. So gold worth $100,000 has a volume of just 220 cc! It's impossible to stop movements of these small sums.

While the benefits in terms of stopping terrorism are miniscule, the AML/CFT work has enormous costs. You might like to see Considering the Consequences: The Development Implications of Initiatives on Taxation, Anti-money Laundering and Combating the Financing of Terrorism by Percy Mistry and J. C. Sharman.

I read a fascinating article titled Stuart Levey's War by Robin Wright in New York Times which gave me a new angle on AML/CFT: it might not block Osama Bin Laden, but it could be used to go after State sponsors of terrorism. As an aside, it also gives you insights about what happens when trade finance gets scarce.

What are good resources on India and AML/CFT? I found this interesting blog.

Entry barriers in higher education

India's Colleges Battle a Thicket of Red Tape by Geeta Anand in Wall Street Journal.

Mastercard's measurement of 65 cities in emerging markets

On 9 November, I had blogged about the measurement of cities as international financial centres (IFCs) that's being done by the City of London. By this measure, in absolute terms, Bombay's score rose by 37 points between 3/2007 and 9/2008, but Bombay's rank was abysmal.

Mastercard has released a MasterCard Worldwide Centres of Commerce: Emerging Markets Index document dated October 2008. Unlike the City of London, which looks at IFCs worldwide, the Mastercard study focuses on 65 cities in emerging markets and looks at a larger perspective on the city as an engine of commerce rather than as an IFC.

In the overall ranking (page 5), Bombay appears at rank 19 with a score of 52.7 while Shanghai is ranked first with a score of 66.01. This ranking is useful in giving a sense of how badly India is faring on urban governance. I found this list to be quite interesting in what it told us about the relative ranks of cities within India: it's Bombay (52.7), Delhi (49.73), Bangalore (47.17), Chennai (47), Hyderabad (45.29), Calcutta (44.65), Poona (43.68), Coimbatore (43.25).

On page 19, they show a ranking focusing on the financial services environment. Here, Bombay comes out at rank 1 with a score of 8.46 while Shanghai appears second with a score of 7.67.

Discussion on credit rating agencies

What was a blog post titled `Interesting internships' has morphed into an `Interesting discussion on credit rating agencies'.

Generational change

Bibek Debroy and Pratap Bhanu Mehta ponder the young and the old, in Indian Express.

Interesting internships

by P. V. Shathish.

SEBI

Planning Commission

Department of Economic Affairs, Ministry of Finance: The interested and eligible students to send their applications, along with their CVs, in the prescribed format to Joint Secretary (Administration), Department of Economic Affairs, North Block, New Delhi latest by 15th January. [link]

Crisis watch, 10 November

TED spread	2.01
S&P 500 returns	+2.89%
VIX	56.10
Nikkei 225 (9:35 AM IST)	+4.64%
US Financials index	+2.48%
ICICI Bank ADR	+8.93%
Call rate on 8th	7.812%
Currency futures (9:35 AM IST)	47.37

• A dollar swap facility.
• I have an article in Financial Express today: The US dollar is an unstable yardstick.
• Indian Express interviews Bimal Jalan; Business Standard interviews Mahesh Vyas; S. Narayan in Mint.
• Business World on the regulatory strategy of RBI.
• Editorials in Business Standard and Financial Express on the monetary policy process of recent weeks.
• John Steele Gordon has an article where he describes three fascinating financial crises: the banking crisis in the US of 1836, the S&L crisis, and the sub-prime crisis.
• When does NBER announce that a recession began?
• I found some current CDS data for financial firms and countries (hat tip). It is the cost per year to insure $10,000 of debt for 5 years.

  Argentina	4453
  Venezuela	2017
  Egypt	663
  Indonesia	638
  Russia	523
  Turkey	445
  Philippines	418
  Morgan Stanley	402
  South Africa	397
  South Korea	335
  Brazil	331
  Mexico	323
  Goldman Sachs	305
  Malaysia	228
  Thailand	220
  Merill Lynch	212
  Citigroup	194
  China	167
  Bank of America	126
  UK	57
  US	36
  Germany	28

• China wants to prop up aggregate demand using the State. See Li Yanping and Chia-Peck Wong on Bloomberg, and David Berboza in New York Times.
• Jon Danielsson and Casper G. de Vries emphasise that resolving the crisis of the money market requires new information transfers. I wrote on a similar theme on 10 October.

Comparing international financial centres

The City of London has released two interesting documents:

• The Future of Asian Financial Centres: Challenges and Opportunities for the City of London
• The Global Financial Centres Index (GFCI), 4th edition, September 2008. For a comparison, you might like to also see the first edition, which is dated March 2007.

In terms of methodology, GFCI 4 uses 57 factors, including responses from 24,014 people drawn from 1,406 financial firms in a survey. To participate, go here and click on `Take the survey now'. And, see the wealth of information that's been harnessed on page 15 and page 16 of GFCI 4.

Here's a comparison of what the 1st and 4th editions are saying:

City	Mar 2007	Sep 2008	Change
London	765	791	+26
New York	760	774	+14
Singapore	660	701	+41
Shanghai	576	568	-8
Dubai	570	597	+27
Beijing	513	509	-4
Qatar		525
Bombay	460	497	+37

To be the 10th ranked city, the score (4th edition) has to be 630. Bombay's rank stands at 49.

The world of finance is undergoing great turbulence. It'll be interesting to see how the cities stack up in GFCI 7. GFCI 5 will be published in March 2009.

Workshop on productivity and efficiency measurement

A workshop on productivity and efficiency measurement will be taught at IGIDR, Bombay, from 2 to 4 January, 2009, by Subal Kumbhakar and Subhash C. Ray.

Building a bond market

Sanjay Nayar has an excellent article in Business Standard on the task ahead in creating a bond market.

Crisis watch, 7 November

TED spread	2.08
S&P 500 returns	-5.03%
VIX	63.68
Nikkei 225 (8:40 AM IST)	-4.35%
US Financials index	-6.21%
ICICI Bank ADR	-2.68%
Call rate on 6th	6.3%

• Indian monetary policy in The Economist.
• Mahesh Vyas in Financial Express on the impact of the financial crisis on the financing of firms. Also see this editorial in Financial Express on a related subject.
• IMF forecasts a 0.3% decline in GDP amongst developed countries in 2009. Also see coverage of this in The Economist.
• Stocks for the long run.

IIP measurement

The apparent decline in IIP after 2007 is partly owing to the end of the CMIE involvement in IIP measurement. CMIE is now back to doing data collection for the Index of Industrial Production.

Market reaction to Barack Obama

On 3rd November, the S&P 500 closed at 965. Now it's at 912.

On 3rd November, the VIX closed at 55. I would have normally expected that the outcome of the US presidential election should yield a reduction in uncertainty. But the VIX is now at 64.

A coincidence? I am reminded of the article in the Financial Times by John Tamny and Rob Arnott, that I had blogged about on 4th November, which pointed out that the market is pretty uncomfortable with an Obama presidency which might shape up as a left-of-centre administration.

The market is doing well, as always, in being a canary in the coal mine. The 5% decline in the S&P 500, and the 9 point rise in the VIX, would exert pressure on Obama's staffing decisions. We're perhaps more likely to get well respected names such as Larry Summers in economic policy roles as a consequence. I am reminded of 17 May 2004, where the stock market registered a massive vote of no confidence in the UPA. I feel this helped increase the quality of Sonia Gandhi's decisions on putting together her cabinet.

Credit default swaps on Indian firms

Jayanth Varma has spotted some fascinating new data.

Statement on MNS

The undersigned are Maharashtrians who have lived and worked in different parts of India and the world without any let or hindrance. We are, therefore, appalled and anguished by the recent attacks on North Indians in Mumbai and elsewhere in Maharashtra . These illegal and unconstitutional actions are an affront to our heritage and the traditions of tolerance that Marathi saint-poets, social reformers and intellectuals have cultivated over many centuries.

The perpetrators of the violence have defied the rule of law and challenged the fundamental right of our citizens to travel, study, reside or earn livelihood anywhere in India . What is more, their cause- the interest of the 'Marathi manoos' - smacks of regional chauvinism.

Regional chauvinism jeopardizes the very future of Maharashtrian youth in whose name the chauvinists are agitating. The Maharashtrian youth, like the youth all over India have legitimate aspirations to acquire education, develop skills and successfully compete in the market place to get better jobs and higher incomes. These are indeed legitimate aspirations and can be met by a dynamic and united India . However, if these chauvinists forces remain unchecked and unpunished, it will be detrimental to vital interests of the State of Maharashtra and bound to subvert unity of the nation as well; the unity for which scores of Maharashtrians have rendered supreme sacrifice by laying their lives.

We urge our fellow Maharashtrians to reject out of hand the regional chauvinists who are engaged in dangerous games for electoral gains and call on the authorities to thwart their designs with vim and vigour.

Air Chief Marshal (Retd) Anil Tipnis, Anuradha Kunte, Bhalchandra Mungekar, Dileep Padgaonkar, Harish Salve, Rajdeep Sardesai, Air Marshal(Retd.) Satish Inamdar, Ambassador Sudhir Devare, Suresh Tendulkar, Tasnim Mehta, Vijay Kelkar

Crisis watch, 5 November

TED spread	2.23
S&P 500 returns	+4.08%
VIX	47.73
Nikkei 225 (11:10 AM IST)	+3.56%
US Financials index	+5.17%
ICICI Bank ADR	+7.28%
Call rate on 4th	7.43
Currency futures (11:10 AM IST)	47.05

• I wrote an article Will the money market go into Crisis #3? in Financial Express today.
• Ila Patnaik in Indian Express on monetary policy.
• Gautam Chikermane on mindless bailouts.
• See this editorial in Financial Express and this one in Indian Express.
• Christopher Cox on reforming the US SEC. When they merge the US SEC and the US CFTC, I hope the merged entity looks more like today's CFTC and less like today's SEC.
• Stephen Schwarzman of Blackstone Group, in Wall Street Journal on key principles that financial sector reform must emphasise.
• The economic slowdown in China, by Ariana Eunjung Cha in Washington Post. The Shanghai Composite index has yielded nominal returns of 0% over the last 8.7 years. Things worked out slightly better in India. 8.7 years ago, Nifty was at 1722, which yields average annual returns of 7.15% over that period.

Crisis watch, 4 November

TED spread	2.37
S&P 500 returns	-0.25%
VIX	53.68
Nikkei 225 (11:10 AM IST)	+5.72%
US Financials index	-0.14
ICICI Bank ADR	+4.73%
Call rate on 4th	7.47%
Currency futures (11:10 AM IST)	49.125

• The RBI statement is unusually well written.
• Satish John and Nesil Staney try to track down the dollar shortage being faced by Indian firms. Also see Shalini Dagar in Business Today.
• Arun Kumar has an article in Business Standard with data about companies where bonds are being traded abroad at very high yields. As with the offshore CDS market, this is an interesting measure of which firms are in distress, that we don't get in India owing to the lack of these markets.
• Rajesh Gajra on short selling. SEBI has started started moving on making SLBM work. But they're still in the micro-management mode of specifying details - e.g. the time of day for which the mechanism should work.
• Percy Mistry on what India should be doing.
• Nirvikar Singh on what next for India.
• Jamal Mecklai is long rupee.
• Shruthi Jayaram in Financial Express has written up Gary Gorton's NBER paper on the subprime crisis of 2007.
• John Tamny and Rob Arnott say that one factor that is spooking the equity market is: an Obama presidency.
• Why was Lehman allowed to die? by Lorenzo Bini Smaghi.

An arbitrage

Wouldn't it be amazing if John Q. Walker's strategy could be applied to Julius Block's data?