A New Wave of Entitlement ...

When the high tide comes in, it lifts all boats  

Indian economy, in my opinion witnessed its major high tide between 2004-08, notably in the services sector 

The incomes jumped up multifold and the salary graphs have shifted trajectories dramatically. Buoyed by the growth in services, other sectors also enjoyed the chain effects; financial services as usual enjoying their disproportionate share in the largesse. The  resultant income and wealth effects spurred the consumption boom and a virtuous cycle of growth 

All this was certainly desirable; particularly for those of us (the urban Indian Baby Boomers; born in ~'50-70's) who were brought up in a save-first and spend-later environment where securing a job is considered propitious in itself. The higher affordability and the financial security of course, did bring in a certain degree of brashness in an otherwise subdued generation of conformists. As far as the urban India Generation X (born in ~'70-90's) is concerned, this clearly meant a slow departure from the conformism in favour of a steady increase in the consumerism. As a result, the luxuries of the Boomers sort of became the base case needs for the X gen

When it came to the urban Indian Millennials (born ~90-10's), however, the attitude and the approach seemed sharply different as compared to the previous generations. Having interviewed and worked with a lot of youngsters in the Indian outsourcing industry in the past couple of years, I can not but feel (what I think as) the unfortunate side effects of the sudden prosperity on the impressionable minds

To start with, I see a reluctance to push and work hard. And a tendency to hype the otherwise normal achievements and ignore the shortcomings or blame others for failures. The expectation of rewards is completely disproportionate to the work load. Self-before-organisation is more often the rule rather than exception. Jobs seem to be easily available; and each time one changes a job, a 20-30% raise is said to be normal irrespective of how one has performed in the previous role. And if you don't keep hopping jobs, you will stagnate. 

When it comes to actual work, it is the super specialty tags that rule the roost, even though a little introspection would suggest that most of these jobs are of the cut n paste variety. And fancy labels for routine stuff seem to add a veil of complexity to the unsuspecting bystander   

Quality, in my opinion comes through diving deep into the subject at hand. Diving deep would require as they say 99% perspiration and 1% inspiration. Progress is not sequential and happens in spurts and bounds. And  in the form of breakthroughs that happen in a flash of inspiration; but these typically come to persons who have been grinding away

If there is no deep involvement, the gratification will equally be non-lasting. And you will need more of the superficial and fleeting instant appeasements to keep you going. Then there is the active social networking enabled through technology and the resulting forced need to look good and feel blessed just like others. The social and psychological pressures this puts on people in general and the millennials in particular is perhaps a separate topic in itself

Being at the right time and right place is perhaps not limited to the Indian outsourcing industry. This was probably applicable at various points in history to various nations, communities and smaller groups. And everyone has to pay a price for this. Leaders pay for their hubris. Arrogant organisations are taught by the markets. Entitled societies and individuals will be brought to the earth by the pure economic logic of the need to balance incomes and expenditures, aspirations and opportunities and opportunities and capabilities   

If and when this does happen in the outsourcing industry, I am afraid that the urban Indian millennials will have to bear the burden of the previous windfalls and reluctantly end up paying the price. This has both the above factors playing out; viz., one, you are out-pricing yourself through aggressive job hopping and two, the poor quality of output can not be camouflaged beyond a point 

It is quite possible that this view is clouded by the fact that each generation views its successors with circumspection. And the urban millennials are a confident generation and thereby invoke a degree of discomfort in the oldies like me 

Nevertheless, there is a nagging feel that the aggression, being so overt, is not limited to mere confidence but has generous doses of arrogance and a strong sense of entitlement. If this is the case, along with the story of opportunity mentioned above, a degree of faulty parenting and avid consumerism may the other reasons for the complacent generation that has been handed over all goodies on a platter       


Is it natural that progress has entitlement as an inevitable baggage? If so how does a successful generation take luxurious care of its successors but also teach the virtues of hard work, ownership, humility and respect        






     

Crossing Boundaries

"He has crossed boundaries, meant something to everyone, which is why you see such outpouring of emotion"

- Rahul Dravid 

Dravid is one of the most level-headed and balanced sports persons seen on or off the field. As established by his well acclaimed Bradman oration 2011(here), his thought process is as clear as his crisp drives. The above quote is yet another example of that clarity. 

"There was and is only one Rahul Dravid. There can be no other" 

- Sachin Tendulkar

SRT and RD are two players that had a lot in common, being fantastic personalities and having fabulous achievements. They both loved their game; they were very talented and backed it up with focus, dedication and great amounts of workload and preparation (they both easily qualify for the 10k-hour rule of Outliers); they exhibit middle-class values and rarely ever display a temper; opponents didn't sledge them because that only increased their resolve; they were highly team oriented players (though critics crib on SRT at times, one never even got a whiff of such critique from other team members); they were confident and authoritative on the field; they took losses with stoic dignity (most of the time); their humility belied their stature; they took Indian cricket to a different level and created the confidence in the team to become number one...

Yet, one got the feeling that SRT had that little something extra (even Dravid mentions him 5-6 times in the Bradman oration). For me these are: (a) his vulnerability, (b) child like exuberance and (c) early start to a glittering career. In contrast, RD was rarely vulnerable and had a solidity that can be boring at times. By the time RD started, SRT was already a star and in RD's words, a lone warrior and set the benchmark for others not only in Indian team but outside too. Also, vital as he was for the team, RD did not have to carry the burden of the country's expectations to the extent SRT did. May be this explains the absence of fanfare when RD retired rather quietly. 

Barring some of these externalities, I doubt whether there is much to choose between these two champions. But I would rather look at the common traits as above to get a feel of what it takes to become a champion and a great person.

For me, both are Bharat Ratnas, one acknowledged so and the other happy to play second fiddle and didn't fret about it. 

The Great Indian Gold Obsession

Yes. We Indians are crazy about Gold. The only other thing that would probably come close to this is the craze for land or real estate. These are in the face, undisputed twin symbols of wealth in India.

Estimates of private Gold holding in India range from 15 to 30 thousand tons (for a comparison, US official holding is approx. 9k tons with Germany a distant second with 3k).  Converted to Dollars, this is a staggering figure that would literally take care of Indian BoP deficits for years. Yet there is relatively little push from GoI/RBI to monetise or unlock this frozen value, even as Rupee's vulnerability is creating a vicious circle of capital outflows, inflation, high interest rates and low growth. A successful Gold deposit scheme is an ideal way out of this conundrum. 

Why do Indians love Gold? And why have the previous gold deposit schemes not been a resounding success? To start with, it is the confidence that Gold will store value better than any financial asset. It is physical and there is a sense of safety. Secondly, over long periods, it performed better than Rupee though the same may not be true in terms of other currencies. So there is an inflation-hedge perception. Thirdly, Gold Jewellery is considered as Sthreedhan, a safety feature for the women and temple Gold is considered as God's. Jewellery is also held for display and not merely store of value. Fourthly, in most cases, Gold can be purchased against cash. Or even where it is not cash, it is not reported. We talk of black money but rarely about black wealth. For whatever reasons, even regular income tax payers ignore paying wealth tax. Forget payment, many an educated tax payer is not aware of the wealth tax regulations. Fifthly, the interest rate offered on the gold deposit schemes so far do not seem to enthuse. Sixth, there is lack of trust and there are fears that once parted, the authorities may confiscate in future or keep extending the scheme. 

Of all these, the black money aspect sticks out. If people want only jewellery, Govt may not be able to monetise the same. But can the private gold held for investment/ black wealth be monetised? I believe that RBI/GoI should make a serious attempt to address some of the above issues. There should be an all out effort on educating the people on wealth tax. A one-time amnesty scheme backed up by a subsequent massive enforcement of IT and wealth tax can potentially do wonders to a well organised deposit scheme. But can the political establishment generate the required will?

The deposit scheme itself should be ideally run by RBI, owing to its better credibility than GoI or SBI. The scheme should guarantee the principal plus interest (a decent rate of say 6%..can it be free of income tax to make it attractive?) in either physical Gold or equivalent Rupee value at the then going rate for Gold. Temples should be persuaded through the Govt trustees on how the interest on Gold deposits can be used for humanitarian purposes. Along with publicity on black wealth, a massive campaign is also required to generate public opinion on how hoarded Gold is an unproductive asset and a colossal national waste. And once a decent amount is collected, this should be used to build up Fx reserves. And long term cycles of Gold price vs international currencies should be used to build back depleted Gold reserves. Such a dynamic approach on forex and Gold reserves along with an attractive deposit scheme can steadily turn the country's fortunes if not overnight. 

Improving Effectiveness of Democratic Governance

Glen Neely is known for his revolutionary ideas on updating and extending the EW tenet on markets and mass psychology. I had earlier tried to summarise my understanding of his extensions here. 

Recently, I was quite excited to see this interview from neowave site (here) that pointed out a simple and elegant solution to the problems of governance that large democracies face albeit in the context of USA.

While looking at governance deficit (here) I did think that small, manageable populations help rich states to turn welfare states. The contra argument, i.e.,  a large population increases the distance between the governed and the governors is what Neely brilliantly exposes as the ailment particularly since  the representation has remained practically unchanged over last so many years.

Cut to the chase, what was our population in 1950 and now. And how many MPs were there then and now. Can we have a Lok Sabha with 2000 members?  And a Rajya Sabha with 1000? Or may be more? Logistics may be an issue (in this electronic age?), but is there intrinsic merit in this proposal?

I think yes. For the simple reason, elected representatives today do not seem to  represent people. I don't think that most of them think that they are       either public "servants" or "representatives". May be the main reason is that they are FAR from people, literally and that's what gives them Power. And power corrupts.. If so; how will they pass legislation to dilute their own power? Will it become another Lok Pal bill? Probably this requires a grass root level revolution. Food for thought for activists like Anna or IAC. If done, this would be a small step in the beginning of decentralization of power. And one that would encourage more educated and service-oriented persons to join politics and govt.

Turnaround?

An Update

September 16, 2012

One more alternative for the bulls. The "E" of "C" may have ended on September, 6 at 52xx as a diametric (instead of as a neutral triangle as under). Not much change in targets etc.. But the sharp reaction to the "reforms", the downside break on the INR (a major B or 2 ending there on the same date?) and the coinciding of global risk-on.. all lend support to the bullish view.

The policy announcements may not be much in substance, but can be huge in terms of sentiment after everyone has given up on the Govt. RBI may oblige by a CRR and/or repo cut tomorrow. 

Is this is indeed the turning point? Odds are good.. Lets see the follow through action both by Govt & by the Markets....

---------------------------------------------------------------------------------------------

Throughout the bear market of last two years, few things stood out. The index barely corrected (much lesser than the usual killer stuff that C waves are supposed to produce). However, much to the chagrin of speculative beta-chasers (yours truly included), the mid-caps' pricing got damaged as much as in 2008; in few cases even more so. A heavy dose of pessimism and bad news pervaded and does so even now. Interestingly, the broad Elliott count and the targets we looked at more than 1 year ago needed no change. 

As we are in the middle of our time target, does the price give any indication of reversal? We had few excitements in June & July, but so far close but no cigar. Intuitively, the negative news, the one-sided fund managers' view, the good picture on INR all lead to a potential bullish structure as below. Need 6k+ in 1 month for validation and below 49xx for invalidation... If looking for in-between alternatives, try "chart dreams" courtesy FIRE and Shailesh's comments in the Third Eye (see alongside for links)

True to label, we need to await confirmations on either side; But no harm in wishing for a turnaround on behalf of a lot of tired bulls.........

HAGO...Cheers

Pushing the Envelope on EW - the Neo-way...

The popularity of Elliott Wave seems to keep growing all the time. Like cycles, it is possibly the promise of predicting an entire structure of market in advance that lures people like me towards it. Once we sight some success in market following a given label, the confidence to label the on-going and the expected activity increases and we get hooked.

Usually once hooked, you are in. Doesn't matter if any forecasts have gone wrong (pretty badly in some cases; for instance, as is well-known, a leading practitioner that people associate closely with EW has been predicting doomsday for US equities and Gold & Silver for last several years). 

After getting enamoured with some of those bombastic forecasts for quite a while, I chanced on neo-wave. The MEW took a while to complete, even with the dreadful 3rd chapter by and large ignored. This and some exposure to neowave literature, has introduced few ideas where I thought that the traditional interpretation may be improved on. These are based on my understanding and may or may not be considered by pure neo-wave (if there is such a construct) followers.

Firstly, the logic that human progress happens in waves of advance and decline is an appealing one. Within this, how do you decide which phase we are in? The neowave answer is that the primary trend is on the side of fastest and largest price action in the given time frame. So for instance if market goes up by say 100 points in two days and falls 120 points in next three days, the trend is up and not down! Ofcourse this needs to be looked at different degrees of time frame. As an extension, a trend can said to be changed if the price action reverses with a move larger and faster than any similar direction (as the reversal) move in the previous phase of the trend. E.g. In the Nifty bear market since 2011, the largest rally was say between 4695-5630 in 1.5 months; The trend change confirmation should come with a larger upmove than this in a shorter time frame.

Second: Continuing with the same logic, an impulse wave should be faster than a corrective one. So if you see a label with 2nd or "B" that takes lesser time than 1 or "A" then probably the labelling is not accurate (In neowave, B taking lesser time is considered acceptable in a triangle). 

Third: Third waves are supposed to be explosive, that usually extend and produce the maximum impact on price (5th waves probably exert more impact on sentiment than in price). But we reduce this to a mechanical rule that they cannot be smallest. And since it is mechanical, we keep finding numerous third wave impulses on any and every chart and on any timeframe. They just wander around and are no longer the "wonders to behold". Be therefore, wary when you see too many 3rd waves not covering major price ground.  And as an extension to this thought, an impulsive third wave which is subsequently completely retraced was probably a part of larger corrective and/or was not a trending impulse in the first place. The neowave mandate is that one of the impulses should extend and one should subdivide (not necessarily the same one)

Fourth: The sub-division within an impulse cannot be corrective in design except in terminal impulses. Though this is in line with simple and basic logic of EW, one sees many impulse counts which donot stand even a simple visual test of impulsion internally.

Fifth: When they do look like impulsions, they lose out by being in perfect channels (can anything in an orderly channel be an impulsion? neowave says probably no..) and the correctives to impulses looking alike with no alteration. Neowave classifies them into double or triple correctives with all similar looking waves being classified as small "X" waves. Similarly the concept of nested 1,2s that are supposed to act as coiled springs in unleashing powerful 3 of 3 of 3 are shown in many orthodox counts wherein larger degree 1 & 2 are smaller than the lower degree ones and subsequently weak 3s are retained. Neowave simply classifies them as channelled correctives. This could be important for the implications on subsequent action.  

Sixth: Most market turning points are not at the highest high or the lowest low. Why? becos, as many would agree, the market sentiment continues to be on the other side a long way after the price has turned. As a classic example, when is the start of the bull phase in Nifty; October 2008 or March 2009? Going by the market sentiment, other global indices etc, it was clearly March 2009 even though it was at a higher low. This logic clears us from highly avoidable patterns such as leading diagonals in 1st wave as propounded by one school of EW thought.

Seventh: Post-Pattern logic: Each structure should give us some post-pattern behaviour, whether it is trend continuation or trend change. A "C" or 5th failure or completion of terminal impulse should produce strong market action the other side. A weak or strong pattern should produce subsequent market action in line with the pattern. If it doesn't then probably we are into something else. Another example being the break of 0-B or 2-4 trendlines. In a heuristic manner, this is also the problem with trading in anticipation with any TA. For confirmation of a signal, you may have to wait. If you wait too much, you may miss the trade. Hence in an anxiety to catch the trade early enough, you go with what appeals to you rather than wait for confirmations. And in EW in particular, post-pattern logic is hardly looked at by most traditional EW practitioners.

Eighth: Apart from (1) and (2) above, Neo-wave proposes certain time and fibonacci relations between different waves, especially in corrective phases. While fibonacci has the logic of nature with it, there may not be any intuitive logic for timing of different corrective waves. The propositions are nevertheless open to empirical testing.

Ninth: Markets are dynamic and self-learning systems with feedback loops. As they evolve and a Principle is widely followed, it is but natural to expect complexity to increase over time. One area in which neowave seems to have done well is to identify such new complexities in the form of different types of triangles, diametrics (7 wave patterns) and symmetricals (9 wave patterns). And there seems to be some intuitive logic for the price and time similarities proposed therein.

Tenth: Many a time orthodox EW counts donot adhere to any rule of proportionality atleast in practice. Large waves are shown alongwith as very small ones at same degree. Neowave specifies a minimum price and/or time level so that a semblence of proportion is maintained.


Lastly, the number of rules in neowave may put off many practitioners, but in practical application, the neowave updates do look flexible. Many a time, they  donot claim clarity on the market positioning but suggest structural confusion and the need to await further developments. Contrast this with the orthodoxy that usually donot have a bother on this count and can propose many alternative counts at same time, all the time!

How the implications can be drastically different may be gauzed by the example that made neowave famous (given in appendix to MEW) wherein it projected a strong market, based on double three running correction in 2nd wave while other analysts were calling for completion of bull phase and a major fall. The other analysts were mistaking a large "X" for a "3". A major lesson one can draw from this is that when in an uptrend, if a market is going up in a corrective fashion, (or vice versa) one has to be doubly watchful. No doubt you may get a fall (rise) to complete the correction, but the next critical move is on the other side of what you expect.. In other words, the correction you think is the beginning of a new phase is actually the last one. By the time you recover from this wallop, much would have happened, including price gaps if it happens to be the actual 3 of 3.

My limited understanding of neo-wave has shown me some of the pitfalls I had in understanding traditional patterns or why they didnot work the way I was told in TA that they would. For instance, triangles are known to be continuation patterns and raising/falling wedges were known to be reliable reversal patterns. However post 2003, I have come across many situations where the results were different. If the neo-wave work on triangles, diametrics and terminals is considered, then these would be explained more satisfactorily. 

To conclude, there is no doubt in my mind, that neowave has pushed the envelope further on EW. It provides a much better platform for money management system if one has to use EW for trading. Within the realm of subjectivity of EW (many other tools of TA are not subjective even while the trading decision may be so), neowave attempts to make it more logical or objective.

Bear Markets Revisited

Nifty, off the Dec/Jan lows and above the trend line from the highs has prompted many to conclude that the low is IN. This and the interesting (to me) discussion on the Third Eye’s blog (here) prompted me to summarise the possible alternatives in Nifty.

The last time I did so in August 2011 (here), I felt that the major C will be a failure/subdued as it is difficult to see the Nifty 2008/9 lows again after the major inflation, the decent growth in GDP and the distressed valuations at those lows. Nothing much has changed since then as we probably ended the “c” of C in August itself and we may be now in “d” of C or may have ended the same in Feb/Mar.

I would like to look at 4 possible counts (three of them similar in ST implications) on the Nifty/Sensex and the arguments for and against:

(1) VP’s Diametric: (here) C over at 45xx. Since C was not impulse, triangle or diametric will follow; Currently in D; Similarity to 1992-2003 cycle; expecting till 2015; Between 1988-92, Index (Sensex) went up by 11 times and corrected thereafter for 11 years; and between 2003-7, it went up by 7 times and hence can correct for 7 yrs thereafter.. Till then D is not expected to make new high, but E & G can make new lows and F can make new high.

For: VP is a leading neo-wave practitioner. Anything he says therefore needs to be watched

Against: Why should the 2008-15 corrective mimic the 1992-2003 corrective? Shouldn’t they alternate?

(2) VP’s Watch List: (Also happened to be one of my favourite bear market scenarios earlier) Extracting Triangle from Mar 2009-Oct/09-May/10-Jan/11-Aug/11-March/12 forming SHS with NL around 4700-4800 lvls… (Quite bearish implications – target of around 1500 points off from 4800). Alternatively, a rising NL (as below) with targets of ~4000

For: Same as above

Against: (i) The equality of time for all legs makes a diametric better choice than a triangle. If so, then we have two more legs to finish the major B itself. In which case, the subsequent C could be weak and possibly fail at say 61.8% (Logic being that when time taken for market correction is very long, it substitutes for the price correction).

(ii) The price damage done at 45xx especially for the mid-caps and small-caps is pretty severe. Filling the target of such a large SHS has seriously bearish implications, removing all the gloss from the India Shining and in fact could lead to a confidence crisis & long hibernation at low levels. While it is not out of question (particularly going by my own perception of the governance of the country), I would like to reject it for the pessimism it brings to the thought process

(3) KRG’s August’ 2011 Count: (and surprisingly still alive? and therefore continues to be my preferred scenario) ...C on-going since Jan/11 or Nov/10: Likely timing to end... Jun-Sep 2012 (1/2 of A+B i.e. 3 yrs) Price Target 4500-3900 with possible failure at 4800. Completed three legs of triangle (by August) and possibly the fourth in March. Last leg of C perhaps has started. Since 45xx is already seen in “c” of C; the triangle may be a contracting one and the “e” of C could stop before 49xx. A slow drift down in next three months also fits in with the timelines as above and popular negative mood of Sell in May and Go away etc..

For: This ensures that we stay above the major election gap of 2009 which many pundits said that we will not see again. And we have spent enough (?) time in correction so that we should get back to new rally

Against: (i) Do the internals of the structure comply to neo-wave. May be a neo-wave expert can comment

(4) Anonymous/Shailesh: (here) C over at 4675 and a large X has started with the first being a zigzag which broke the b-d trendline. The second of X is on now and needs to stay above this TL. After the c of X, 2nd corrective to follow. Logic being double the time of the previous/post impulse; large amount of time would mean further corrective and C failure can lead to running correction for the second corrective. X & 2nd corrective will meander in a large range with 4500 as bottom, new highs and the promise of a mega rally from 2016!

For: This seems to fit all the neowave rules. The timing of C has equalled the A. Though, severe failure of C is a rarity in neo-wave, potential of a large X forming obviates the need for a very strong market momentum despite such failure. 

Against: Should such a rarity be accompanied by some major event?

The difference between the three similar counts (1,3 & 4 above) is the longer term  implication. In the ST they are all looking at a scenario of the major Low is in or nearby.