We cannot possibly link Indias GDP to the United States imposing tariffs on China. It almost makes me laugh, says Andrew Freris, CEO, Ecognosis Advisory. Excerpts from an interview with ETNOW.
Some experts including the former Central banker Janet Yellen believes that perhaps a recession can be avoided and that the bond market is predicting low growth but not a full blown downturn. What is your view?
First we have to know which markets have got the inverted yield curves and how frequently this has happened. I would like to know if the yield curve is inverted in India. If it is inverted right across the range because in the United States, this morning, it was only inverted between two and five years, it is not inverted anywhere else. I am afraid an enormous amount of noise is being made about the inversion forgetting two things, that for the inverted yield curve to forecast a recession, you have to look at least 20 to 30 years worth of inversions and these are not worth a penny now because in the past, the markets did not have zero interest rates.
In other words, a) we are looking at a completely different market in bonds. b)Where is that yield curve inverted? It is not inverted right across its length. Also, a lot of yields now are even negative and when you want to look at a negative yield curve, it becomes a little bit hairy. I tend to pass by when somebody tells me if the bond markets are telling us anything about the probability of a recession. I say no they do not.
Actually, I do not think they tell us anything about the recession. They tell us a great deal about what people are expecting from the central banks. They tell us a great deal about the future of inflation and of course about the future of interest rates.
What implication does this have for Indian markets at a time like this?
If one looks at GDP growth rates, right through Asia, you get an incredibly mixed view. An extreme case which is easy to interpret is not even worth looking at is Hong Kong. Hong Kong was decelerating for nearly a year, before their political instability. I cannot possibly blame the political instability for the deceleration in Hong Kong. GDP growth in India has also decelerated. In the case of China, it has mildly decelerated as also in the case of the United States. But every country has a completely different view. The impact of the trade war on India has been completely collateral. There has been side blows.
We cannot possibly look at Indias GDP and say this is a result of United States imposing tariffs on China. It almost makes me laugh! The impact on India has been removal of certain clauses of favourable treatment for some of Indias exports. India is not an export driven economy. It is an economy driven by domestic considerations. It is very easy to blame Trump for everything that is happening in the world. but let us leave it outside now.
Do you think we are in for a massive global contraction? Are we looking at a repeat of 2008 may be next year or after 18 months?
No, because individual countries have very different individual cycles. The Read More – Source