Economic events and their impact By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

June 20, 2016 | Posted by bobbysrinivasan << back to blog

Many of us live in a dream world not knowing in the first place the economic events that are taking place and in the second be indifferent to the outcome of the events. A simple argument presented is I don’t need to know besides I am already overwhelmed with my work, family etc. The people who show indifference pay a high price for being indifferent. Just to get started, the US housing bust which took place in 2008 (often referred to as sub-prime crisis) initially was ignored by our citizens claiming that it is the US problem and why would I need to know. Unfortunately he had to, guess what happened. The aftermath of this event literally destroyed our Sensex which dropped from 21000 to 8000. The retail investor sold all their stocks and exited in panic after incurring huge losses. As an investor should you not know about this crisis and how and why this happened? For many it became a lifetime decision not to play the market and worst of all telling the next generation that playing in the stock market is a dangerous game. They claimed that the bigger players will cheat you and take away your hard earned money which was invested.

Yet another example, on August 24, 2015 China announced a small devaluation of less than 4% to its currency namely the Yuan. The market took is as a major economic event and reacted by dropping 1700 points in the Sensex. This again burnt a few investors who took a vow never to come back again.

We live in a complex inter connected world. Any economic event of significance outside our country comes and spreads like a wild fire. This is where we need to ask the question, “What do I know about India?” Don’t be surprised if the answer turned out to be none.

The primary reason for this is not the lack of information but the lack of empathy to it. For example, did you know that 16 to 17% of lendable funds of PSU banks are non-performing assets? This is the reason money is scarce in the economy. Borrowing becomes not easy and if we still got the loan the price of loan reflects this bank loss. Similarly our bank deposits earn less for the same reason.

In any financial year so many economic events of importance take place in this world. They can be categorized. 1. those that have a mild impact, 2. those that have a modest impact and, 3. those that have high impact.

Let me list atleast 2 events forthcoming in this financial year. The first is the Brexit. The Britishers are going to the poll on June 23 to decide whether Britain should continue in the Eurozone or not. If they said yes to exit, a sea of change is going to take place. This will change the value of currencies both euro and the pound and these relationships to US dollar. Change in immigration laws and residency establishing visa requirement to work which hitherto did not exit trade and tariff rules. Movement of goods you name it. This may even start the next global recession. Another event which can have a huge impact is the Chinas devaluation of currency. The growth rate of China has come down enormously. Analysts believe that for the current financial year their growth rate may drop to 6% in the past when their market share was threatened in 1994. China devalued their currency from 5.4 to 8.27 to a dollar. Will this happen again and if it did, competitive devaluation will take place creating a pandemonium in the global financial market as all funds will rush to both gold and the dollar.

Finally one may say ‘so what’ these events will take place but can’t do anything about it. This is precisely the point. Yes, you can that is what trading is all about. If there is any course that will have an impact. Trading course will top the list.

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