21 Jan 10 Indian Bond Traders Whine


SONY DSC

In India, we have a habit of running to the government (or blaming them) every time something goes wrong. This is no doubt a result of our socialistic upbringing, a legacy most adult Indians find hard to shed – even the most die hard, born-again capitalists!

 

Today, the Mint carried a story titled, “‘Don’t talk so much,’ bond traders want RBI to tell govt”. The crux of the story (and the complaint of bond traders) is that various statements by government officials and ministers regarding the likely monetary policy, are unduly impacting short term bond prices. These traders believe that government functionaries should keep their mouths shut, and not speculate on the likely actions of the Reserve Bank of India (RBI). [Incidentally, like a good central bank, the RBI keeps mum.] Further, the anguished traders believe that the media should not play up such stories.

 

While I agree that senior officials should not speculate on subjects they know little about, it’s worth pointing out that we’re a democracy! And everyone (including politicians and bureaucrats) has a right to express their opinion. And the media can be expected to sensationalize everything.

You may not agree with their views, and you may think they’re being irresponsible. But then, they only care about the impression they make on their political constituency. And evidently, that does not include highly paid bankers or traders!

 

Ultimately, smart traders will stick with the fundamentals. If there is an economic rationale for reduced liquidity or higher interest rates, then the RBI will take appropriate action at the appropriate time. If you take your cues from irresponsible, ignorant or uninformed officials, then why blame them?

 

The point here is that there are an infinite number of unpredictable events that will induce short term fluctuations in prices (whether or shares or commodities or bonds). But saying that people should not make irresponsible statements because this creates near term volatility is ridiculous. If that were the case, then nobody – not government, not politicians, not fund managers, not traders, not analysts – nobody at all – should ever express their views on any subject that might be related to any financial market! And maybe then we should shut down financial channels and newspapers!

 

Get real! If you live off trading in financial markets, don’t blame unexpected events or stupid speculative opinions. If you’ve got the fundamentals right, then such short term reactions might actually present opportunities. Conversely, you have to budget for risks, which should include the risk of having irresponsible politicians.

 

The truth is, we Indians have got used to blaming others. We do have an immature democracy and polity. If you don’t factor that in as a risk, it’s your problem – not the politician’s or the media’s.

Arun Jethmalani
Arun Jethmalani

Arun is one of the founders of ValueNotes. Apart from trying to build a high-quality research business, he has spent the last 27 years researching, analyzing, and dissecting companies and industries. He has worked with clients of all shapes and sizes, from all parts of the world – in providing them insights that make a difference to their business.
Prior to ValueNotes, he was an equity analyst/advisor, and wrote extensively on investing – including a column titled “Value for Money” which ran for 10 years in the Sunday edition of the Economic Times. To this day, he remains an avid “value” investor.
He has also been published in several other publications, and is a regular speaker at events related to technology, investing, competitive intelligence, business process management, Internet, etc. See: Valuenotes Events
He has been instrumental in developing a community of research and intelligence professionals in India, and is the founder and current chairman of the SCIP (India) Chapter. Arun holds a B Tech from IIT, Bombay and an MS from Duke University, NC, USA. LinkedIn Profile

1Comment
  • florida public adjuster
    Posted at 02:05h, 22 February Reply

    My advice to people with bond portfolios right now is to sell the bonds that are at a profit to take the profits off the table (anticipating rising rates in the near future) and hold the bonds that are at a loss for the most part. In regards to the rest of their retirement portfolio, i recommend a diversified market driven portfolio of bond and stock mutual funds and etf’s (managed by a professional money manager) and using income annuities to meet your basic cost of living that the income from the bonds doesnt meet. if your interested in leaving a legacy, you might want to consider permanent life insurance as well.

Post A Comment

*

Show Buttons
Hide Buttons