Saturday, September 7, 2013

Recent Reforms in Indian Money Market

Indian Government appointed a committee under the chairmanship of Sukhamoy Chakravarty in 1984 to review the Indian monetary system. Later, Narayanan Vaghul working group and Narasimham Committee was also set up. As per the recommendations of these study groups and with the financial sector reforms initiated in the early 1990s, the government has adopted following major reforms in the Indian money market.
reforms in indian money market
Reforms made in the Indian Money Market are:-
  1. Deregulation of the Interest Rate : In recent period the government has adopted an interest rate policy of liberal nature. It lifted the ceiling rates of the call money market, short-term deposits, bills rediscounting, etc. Commercial banks are advised to see the interest rate change that takes place within the limit. There was a further deregulation of interest rates during the economic reforms. Currently interest rates are determined by the working of market forces except for a few regulations.
  2. Money Market Mutual Fund (MMMFs) : In order to provide additional short-term investment revenue, the RBI encouraged and established the Money Market Mutual Funds (MMMFs) in April 1992. MMMFs are allowed to sell units to corporate and individuals. The upper limit of 50 crore investments has also been lifted. Financial institutions such as the IDBI and the UTI have set up such funds.
  3. Establishment of the DFI : The Discount and Finance House of India (DFHI) was set up in April 1988 to impart liquidity in the money market. It was set up jointly by the RBI, Public sector Banks and Financial Institutions. DFHI has played an important role in stabilizing the Indian money market.
  4. Liquidity Adjustment Facility (LAF) : Through the LAF, the RBI remains in the money market on a continue basis through the repo transaction. LAF adjusts liquidity in the market through absorption and or injection of financial resources.
  5. Electronic Transactions : In order to impart transparency and efficiency in the money market transaction the electronic dealing system has been started. It covers all deals in the money market. Similarly it is useful for the RBI to watchdog the money market.
  6. Establishment of the CCIL : The Clearing Corporation of India limited (CCIL) was set up in April 2001. The CCIL clears all transactions in government securities, and repose reported on the Negotiated Dealing System.
  7. Development of New Market Instruments : The government has consistently tried to introduce new short-term investment instruments. Examples: Treasury Bills of various duration, Commercial papers, Certificates of Deposits, MMMFs, etc. have been introduced in the Indian Money Market.
These are major reforms undertaken in the money market in India. Apart from these, the stamp duty reforms, floating rate bonds, etc. are some other prominent reforms in the money market in India. Thus, at the end we can conclude that the Indian money market is developing at a good speed.

Pork Shortage Everywhere Except For Politics

  • The severe drought of 2012 will be rockin' Trader Dan's bread and butter in 2013.
  • Live hogs are moving up the money flow table (see table).  Hogs diffusion index has risen from -9% to 28% within a span of a week.  This reflects aggressive accumulation.  Pigs are extremely smart, so Jim, don't let Petunia read this.

Table:  COT Money Flows

Headline:   Bacon, pork shortage, 'now unavoidable,' industry group says

Might want to get your fill of ham this year, because "a world shortage of pork and bacon next year is now unavoidable," according to an industry trade group.

Blame the drought conditions that blazed through the corn and soybean crop this year. Less feed led to herds declining across the European Union “at a significant rate,” according to the National Pig Assn. in Britain.

And the trend “is being mirrored around the world,” according to a release (hat tip to the Financial Times).

Anticipation Of and Profit From Change

Paul addresses some interesting points about how human behavior and natural cycles are interwoven into commerce and the movement of capital across the globe.  I will add that while change which can occur incrementally over time, it’s often accompanied by significant and violent crashes (six sigma or black swan events) through barriers erected by society’s previous paradigms of thought.  These crashes are commonly associated with great conflicts and social upheavals.  My study of the markets attempts to anticipate (time) and profit from these inevitable changes.  As Paul suggests, some big ones are coming.


A few quick comments/questions:

Regarding the statement you made to bob - it appears to be a problem of making assumptions first without necessarily testing hypotheses. This problem is itself endemic amongst the world population, and is responsible for a large portion of the world believing 'myths', whether they are minute or grandiose. As you have pointed out time and time again, this arrogance of understanding is prevalent in the markets despite repeated lashings for those who are on the wrong side of the trade.

A few quick questions:

Perhaps it is naivete, but the world I see on the horizon is one of increasing turmoil, distrust of institutions (particularly central issuers of currency) and increasing reliance on local conglomerates for trade and resource production. This is not to say that I think international trade is dead: rather, that the incentives for local trade will increase in comparison over the course of the next 20-25 years.

The future of gold as money, both in the context of backing by a central issuing authority, and/or uniquely digitized for the growing demands of international commerce presents itself as a near authoritative fact when one attempts to discern where the world is headed. Without sounding too vague, there are several questions I'd like to pose:

a) Acknowledging a declining DOW:GOLD ratio, is it possible for substantial overshoot beyond 1:1, such that 0.5 or even 0.1 ounces of gold will effectively purchase a unit of the dow in a decade? This question is prompted by the fact that while one can refer to historical analogues, discuss where the ratio has been, or even attempt to draw some other quantitative measure, is it not possible that such a fundamental change happens the data sets we will be privy to in 10-15 years will have no historical comparison?

b) In my opinion, we are on the cusp of what is perhaps the single most explosive point of technological advancement combined with political instability history has ever known. This implies danger, and danger is often the gateway to radically novel methods of thinking and conducting business. Provided these circumstances, is it rational to assume gold will be adopted as a central mechanism for future valuation, perhaps even outside of the sphere of fiat money? By this I mean, is it possible that an entirely new form of weights and measures in the monetary system evolves, outside of government issue fiat? Perhaps an open market where goods are priced in grams of gold: ie. X # of grams per barrel of oil, per pound of copper, per bushel of wheat, etc. (Not planned per say, but in response to market necessities. Similar revolutions have occurred before in a variety of other fields - why not economics?)


Aside from this, I'd just like to state your tendency to relate processes found in natural systems to the markets appears to be a very natural and effective, (albeit complex) method of gauging behavior.

"When I’m long dead, I’d rather not have people suggest that Eric De Groot was just another one of history’s dumb asses hell bent on making money."

You've gone out of your way to make your work available. For those who understand the time and effort required to study from an original angle, and then to share it, this fact should be obvious. From the younger generation - no worries :)

Once 'Still Ok', Now 'Getting Scary', Next 'Save Me'

We suggested that the economy was transforming from ‘still ok’ to 'getting scary' this summer (chart).  It will get worse; cries of "save me" are coming.  Normally, lots of money has already been made by the time the headlines recognize the transformation.  At this point, I will say that the intermarket message, money flow analysis, and most important of all cycles suggest a setup into 2013-2015 that will make 2007-2009 look like child’s play in comparison.

Chart:  Real Business Core Capital Spending:  Real or CPI-Adjusted New Orders of Durable Goods ex. defense and aircraft (RBCCS) and YOY Change

Headline:  Scary Durable Goods Numbers

The Commerce Department reported that durable goods orders fell by 13.2 percent in August, not surprisingly the Wall Street Journal chose to highlight this drop. While the number is dramatic, nearly all of the drop was in the highly volatile transportation component. Excluding transportation orders fell by a considerably more modest 1.6 percent.

Within transportation, civilian aircraft stood out with a decline in orders of 101.8 percent. Yes, the number was over 100 percent, as apparently there were more orders canceled in August than added.

Up Is Down In Election Years

I'll present the following trends below for those not averse to independent thinking.  The trend towards service producing jobs (food service or "hamburger flipping", bartending, food, hospitality jobs, etc) over good-producing jobs has been in place since 1953.  Who cares if the BLS found some extra jobs while cleaning out the garage this weekend.  Don't expect capital to suddenly reverse course and start investing money back into US factories on the news.

Chart:  Good-Producing (GP), Manufacturing (MFG), and Service-Producing (SP) Sector As % of Nonfarm Payrolls (NFP)

Headline:  New data shows Obama may be a job creator, after all

Republicans may soon lose a key talking point. According to data released Thursday, President Obama may now be a net job creator.

In the year following Obama's inauguration, the U.S. economy lost about 4.3 million jobs. But new figures released Thursday show 4.4 million jobs have been added back since then.

Here's how it happened: Since early 2010, jobs have slowly been trickling back, particularly in professional services, health care and manufacturing. As of August, the Labor Department had indicated about 4 million jobs had been recovered overall.

Those figures get revised frequently though, as the Labor Department gets more complete data over time. On Thursday, the Labor Department released a statement, saying it crunched the numbers again, using unemployment insurance records that employers are required to file.

Forget the Black or Freckled Swan, Follow The Message of The Market

Black swan, freckled swan, or spotted pig, regardless of the imagery used to denote doom and gloom fills the seats and generates clicks within the investment community.  Selling doubt as stocks climb a wall of worry is easier than selling bottled water in a desert.

While various negative and positive divergences paint a picture of intermediate and long-term vulnerability for the stock market, it doesn’t mean a correction is imminent.  Capital fleeing Europe is parking in the US.  A portion of these capital flows are finding a home in US equities.   A retest of the 9/6 gap on lighter volume suggests waning downside force (chart 1).  Inevitably, what cannot go down with force attempts to go up with force.

Chart 1: Nasdaq Composite with Exchange Volume

Corrections tend to occur when the bullish sentiment becomes concentrated (chart 2).  Bullish sentiment is not concentrated (above the red line).

Chart 2:  S&P 500 And American Association of Individual Investors Sentiment Survey Bulls As % of Bulls and Bears

Headline:  Beware the Coming 25 Percent Correction: Pro

Renewed jitters over Europe, growing fears about China and the U.S’s precarious fiscal situation all bode poorly for the recent stock rally, which could correct as much as 25 percent in the coming months, an investment manager said Wednesday.

Market participants often refer to unanticipated occurences that rock the global economy as "black swans". Yet Stanley Crouch, chief investment officer at Aegis Capital, told CNBC’s “Street Signs” that a “freckled swan” of powerful macroeconomic headwinds is building momentum.