21 Jan 10 Indian Bond Traders Whine
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.