WINNING STROKES: THINK DIFFERENT
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| Cost push inflation occurs when costs of production rises independent of demand factors. Costs may increase due a number of reasons: may be wage increases or perhaps an increase in raw material prices (oil prices in this diagram) or Interest Costs. In this case it is not the aggregate demand that increases, it is the aggregate supply curve that shifts to the left, as in the diagram. I believe in India we have cost push inflation, at present and hence keeping interest rate at such a peak level will not help to tame inflation. |
Today, Southern Ispat and Power Ltd moved up with good volume and touched Rs.4, before closing at Rs.3.90). I have already mentioned that, the company is in the process of taking a stake in a mine, in Madhya Pradesh (Please go through my earlier notes).
ARSS Infrastructure Ltd hit the buyer freeze today, but came out in the late hours when the markets tanked following a Reuters poll that, RBI might not cut the interest rates in its next policy rates, according to a battery of economists and marketmen. But I say, what is new on this topic? This has already been factored into. The Indian markets never moved up in anticipation of a rate cut but due to the recent government policies, which are reformists. So, I do not find the logic of market tanking on interest rate cut expectations. Also, when we have a ROBOT as the governor of the RBI, to manage an economy instead of an intelligent human being is rate cut a remote possiblity? I do not think so. When the RBI bosses, becomes smart human beings, then only we can expect that---otherwise be happy to taste, a slight CRR cut instead of a rate cut. Also, some of the arm chair economists have now found a quick fix to tame the inflation monster: "To keep high interest rate and squeeze liquidity out of the system". They do not bother to think that such ostrich like approach maintained for a long time could have serious negative effects on any economy. We are probably now more close to "Stagflation", as the growth has more or less stagnated, while inflation is still high. So, what is Stagflation exactly: It is an economic situation where inflation and economic stagnation or recession occur simultaneously. Stagflation was witnessed by developed countries in 1970s, when world oil prices rose dramatically. Now let us dig a little deeper: in normal circumstances, the following Monetary measures are used to control inflation (apart from Fiscal measures) include:
(i) bank rate policy
(ii) cash reserve ratio and
(iii) open market operations.
(i) bank rate policy
(ii) cash reserve ratio and
(iii) open market operations.
But since, these measures are not helping to control inflation, then what is the use of pursuing them for so long? Some skeptics argue that, "If such measures were not taken then the inflation could have been much higher". But I do not find any justification to their theories as in India at present we have mild inflation or moderate inflation or when generally the rate of inflation is less than 10% annually. Is there any justification to apply steroids when normal medicines can cure a disease? But as I said earlier when we have have a "BOT" and not a human being to control the things this is not uncommon. And in the "Economists" fraternity these days are full of "BOTS". A "BOT" will do the things which it has been programmed to do without any independent logic or reasoning. This is what happen when you allow prestigious institutions like RBI to be hijacked by theoretical economists, who do not want to go beyond what is mentioned in books or what they believe is correct or do not like at the view of other economists---the arrogant lots. But the problem is that economics is not a science, nor are the inflation figures absolute, they are more of "Empirical" in nature and more importantly prone to human error. So, why take them so seriously and damage a growing economy? Therefore, the problem arises when the Central Bank starts to take them as "Absolute" or considers them to be "Sacrosanct". In this context, I feel it is pertinent to mention what I mentioned earler in FACEBOOK---I feel India is suffering more from "Cost-push inflation", rather than "Demand-pull inflation" or "Built-in inflation". When we have such interest rates, it is natural that we will have high cost of production. Now when the things produced fall under essential categories, a large increase in its price will not deter persons in using them---can anyone stop shaving only because the price of Blades or Razor has increased? Can anyone stop wearing, "Bras or Panties" because they have become costly? So, now m any many might argue about price fixing, like what the Greeks did or what Ms.Mamata Banerjee's governement in West Bengal is doing as regards the price of drugs----this is more suicidal. How? I will explain sometime later. But you can do a Google search to find out how, price fixing, to control inflation is not only moronic but dangerous for any growing economy. After saying so much let me say another thing: I do not belong to the school of economists, like Milton Friedman, who argued against it. Anyway, let us see what the "FERTILE" brains of RBI governor and deputy governor eke out on next tuesday, for we, the "Less Privileged" ones.
Southern Online Bio Technologies Ltd which was strongly recommended in this blog, hit the buyer freeze before coming down a bit at the end of the trade. There is virtually nothing much to lose from this scrip at Rs.2.30. Buy the scrip and wait for sometime, for the company's mega plant in Vigaz, to become fully operational. This scrip could give you huge returns in the next 3- 6 months.
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