Saturday, August 30, 2008

"Remember, nobody got hurt between 2003-07"

Manjula Chawla and Srinivasa Rao debate `treaty shopping’ and `round tripping’.

"Treaty shopping" occurs when a third-country resident derives benefits from a tax treaty intended to serve only the interests of residents of specific bilateral treaty nations. "Round tripping" refers to the practice of local investors that take money out of the country and bring it back in under the guise of a non-resident to escape the tax net.

I say subjecting capital to excessive regulation is dumb because it encourages smart people to lock up capital in unproductive boxes. Say No to drug money or terror funds by all means. But capital that takes a trip just because of excessive tax rates should be viewed through a different prism. Keeping in mind our infrstructure needs, it should be winked at.
I would rate it as enterprise. It is smart money anyway. If you don't let it flow, it will head elsewhere. Isn't it downright stupid to let go ?
Why spoil the party? Let the good times roll. Remember nobody got hurt between 2003-07 bull run ;-)

What say you, reader?

Thursday, August 28, 2008

For some, a bubble is forever

This one looks like a googly. What to make of this?

An Indian company [Great Easter Energy Corporation (GEEC) promoted by Y.K.Modi – that is into CNG exploration and production] listed in AIM of LSE in London is now seeking to issue shares in the Indian market. Reportedly a Rs.10 billion issue, 50% of which is an offer for sale by existing GDR holders (they call it `sponsored’ issue quite funnily - even as the GDR holders are seeking to exit the venture!). About Rs.5 billion will accrue to the company out of the issue proceeds (and remaining Rs.5 billion to exiting shareholders). GEEC currently has accumulated losses of Rs.216.37 million in its balance sheet.

Net increase in paid up capital will be just Rs.50 million or so. That means a fat premium of close to Rs.199/- per Re.1/- share in a down market even as the company is barely into revenues (Rs.49.39 million for FY 2007-08). The company has initially raised $20 million in December 2005 (1$=Rs.44 then) – that means the investors are in a hurry to recoup 5.68x their initial investment. Begs the question - why the hurry?

It will be fun to watch how this rip-off IPO is rated by the agencies and how it gets palmed off to investors – both suspecting and unsuspecting. But the real fun will be to watch its outcome, that will be an indicator of the level of investor gullibility ;-)

Wednesday, August 27, 2008

Issuers should take Merchant Bankers to task

Talk of clumsy merchant banker allowing semantic distortions and when hauled up by SEBI, refuses to yield. Outcome? Botched business plans of issuers!

SVPCL, a Hyderabad based manufacturer of computer stationery floated its IPO in October last year, and raised Rs 34.5 crore. Though the issue was fully subscribed, BSE denied permission for the shares to be listed on the exchange because of an apparent misstatement in DRHP. This was because UTI Securities, the lead merchant banker responsible for post-issue compliances, had expressed its inability to give an undertaking as required by BSE under Section 73 of the Companies Act, 1956.

The IPO, which got subscribed little over one time, was stalled after BSE refused listing permission as the company had inadvertently mentioned on the cover page of its red-herring prospectus that at least 50% of the net issue to the public shall be allocated on proportionate basis to QIB. The legally appropriate term to be used was ‘up to’, and not ‘at least’.

Why not the merchant banker be hauled up for errant drafting that they do? Should they not make it up to the issuers? Who is responsible for semantic distortions creeping into DRHP?

What else the issuer pays fee to the merchant bankers for? If they were to draft it, why would they hire a merchant banker? The CFO and Company Secretary can sit together with lawyers and bring about even an IPO, except that SEBI mandates appointment of Merchant Bankers. Now that it has lost the case against the exchange, SVPCL must file proceedings against UTI securities for refund of fees and for damages...

Tuesday, August 26, 2008

Economy? Go to hell !

“The battle against inflation will likely come at the expense of economic growth, which looks set to decelerate in the second half of 2008 amid cooling domestic demand and persistent external weakness,” says Sherman Chan, an economist with Moody's. The recent decline in global oil prices will not lower India's rate of inflation, which will remain "stubbornly strong" in the coming days despite monetary tightening by the central bank. Until next June, energy prices will also remain notably higher on a year-ago basis because of the cut in subsidies two months ago. The rise in global commodity and food prices is still a major driver of inflation in India. The retreat of oil will only help ease the pressure on the government to further raise domestic energy prices, according to Ms.Chan.

Makes sense. Now read what the Deputy Chairman of Planning commission Montek Singh Ahluwalia has to say. The fiscal deficit target set at 2.5% of GDP for 2008-09 is set to be higher by a significant margin. It is estimated the deficit will be breached by almost twice the budgeted target due to high oil prices and a whopping fertiliser subsidy bill. There had been a substantial increase in off-budget numbers and there were good reasons for this. He said the fiscal deficit is not a long-term problem as, next year, some of the increases would not be repeated and a significant revenue buoyancy would help ease the situation.

All hopes. On the ground inflation remains the growth killer. RBI can raise interest rates, mop up dollars to arrest a falling Rupee (that inflates oil bill) and introduce monetary measures like hiking CRR and Repo rates. Now the key element is augmenting commodity supplies. Who controls that? Commerce and Industry Ministry? It’s just a toothless caricature of its once powerful self (when quotas prevailed and licence raj was full on). Now I conjure up its icon Kamal Nath only as our emissary at WTO to make sure the talks fail!

Enough drama. Getting back to reality. Raw material costs are up 26% while interest charges are substantially higher at 34%. But instead of passing on these higher costs through price hikes, companies have retained them on their accounts so that growth is not compromised. Is this compromise sustainable at such low net margin growth? But then, there are more important issues to resolve!

Monday, August 25, 2008

How fair is Fair Market Value?

The whole world seems to despise Fair Value or Mark-to-Market (M2M) accounting standard that is, what an asset would be expected to fetch right now in a sale. It’s when regulators enforced it, the banks had to expose their ugly underbelly that led to massive write downs. It now stokes a fear that whether the liquidity crisis will eventually lead to a solvency crisis. As holders of mortgage-backed securities (MBS) and the like revalue their assets at fire-sale prices, they are running short of capital—which can lead to further sales and more write-downs. Are the bean counters ensuring a crash? Asks the Economist.

So is historic cost accounting an alternative? Hardly. It could be worse. In a crisis prices fall until bottom-fishers start to buy. Yet when assets were booked at their original price, rather than at market price, banks could delude themselves—and investors—that dross was gold. Look at Japan, where the economy was sunk for most of the 1990s by stagnant loans to “zombie” companies. Historic-cost left investors in the dark about valuations; it was also prone to fraud and fraught with moral hazard, since sloppy lending went unpunished.

It would be perverse to ignore market signals when finance is increasingly based on broad capital markets. Fair-value accounting is indeed flawed. To paraphrase Winston Churchill, it is the worst kind of accounting, except for all the others. But one can be careful on selection of the benchmark.

Sunday, August 24, 2008

Wednesday, August 20, 2008

The PE bland dish

In the spiceland of India, nobody likes a bland dish!
But that's what PE funds have lately become. I revisit their fundamentals. Private equity investing may broadly be defined as "investing in securities through a negotiated process". The majority of private equity investments are in unquoted companies. Private equity investment is typically a transformational, value-added, active investment strategy. It calls for a specialized skill set which is a key due diligence area for investors' assessment of a manager. The processes of buyout and venture investing call for different application of these skills as they focus on different stages of the life cycle of a company.

This is the world view of PE and the reason why savvy investors buy into private equity funds, classifying them as a premium asset class and crediting its managers with superstar status.

But in India, the superstars hardly sizzled. Strategic input? My foot! They whimper and whine and take refuge in quoted equity. They settle for minority stakes, wield no great influence in the board and look no different from passive public market investors. So do their dull and dreary strategies and they do what an average investor does – see how they follow Rupee cost averaging.

I think the investors in these funds will fare far better buying Index funds. They can at least save all that management fee and the carried bonus they pay for bobbing up and down with the market sentiment.

Bonding with convertibles

No I am not talking about sexy Alfa Romeos here.

Falling stock prices mean that investors have to increasingly rely on the bond part of the convertible securities for returns.

More than $1.4 trillion of equities worldwide are now on loan, about a third higher than at the start of 2007, data compiled by Spitalfields Advisors, the London-based firm specialising in securities lending, show. Almost all of that is being used to speculate shares will fall, according to James Angel, a professor at Georgetown University who studies short-selling.

Negative Yields Investors were willing to accept negative yields of as much as 11.5 percent in January to buy Reliance Communications Ltd.’s zero-coupon convertible bonds maturing in 2011, as the company’s share price on Jan. 9 climbed to a record 821.55 rupees, 71 percent higher than the 480.68 rupee conversion price set when the $500 million of securities were sold in March, 2006.

Investors are now asking for more than 5 percent yield to buy the bonds of the Mumbai-based company, India’s second-largest mobile-phone operator, as the stock has fallen 48 percent from its record, according to Nomura Holdings Inc.’s prices.

“This market is becoming a busted universe, offering little equity value,’’ as a HK based analyst Viktor Hjort said. “As stock markets are repriced, people should treat the share option portion of a convertible bond just as a lottery ticket and start looking at the asset from pure credit fundamental perspective.’’

But then there are many other wide open, lucrative avenues for ever enterprising investment funds.

Tuesday, August 19, 2008

The telco balls of brass

Here. Admire the telco chutzpah. Telcos getting back with a vengeance with 3G iPhone pricing that is nothing short of a rip off. Get ready to pay Rs 31,000 for the entry-level 8GB phone and Rs 36,100 for a 16 GB memory. Both Vodafone and Airtel will launch the iPhone on August 22 and early reports suggest that they would be able to sell over 100,000 phones in the next 12 months.

It is much cheaper in the US (because the telcos subsidize it) where the handset is available for $199 (Rs 8,358) plus $99 (Rs 4,158) as an annual contract with the carrier that has the exclusivity. In India however, neither company will offer a subsidy.

The telcos here flout all license conditions but will shamelessly cry for a level playing field when TRAI chose to open up open access internet telephony to ISPs that are technically resellers and not carriers. Our experience with Indian carriers has been one of abject apathy to overcharging despite their vast customer base. Unless TRAI tracks down areas where telcos gouge Indian customers and direct them to slash costs, they will never. Opening up internet telephony is the latest.

But tell me something. Isn’t there a recession that we’ve been bracing up until a few days back? Now I hear folks queuing up to buy iPhone at nearly 3x the price that it sells in the US. Have we turned incurable gadget freaks or is it that we have suddenly discovered a ton of data to download or that we get lost on our way home without a state of art GPS or will we die starved of entertainment feed from much touted direct connection to YouTube that the 3G avatar is expected to provide?

Thursday, August 14, 2008

Why not let go ?

Why is the Government so much bent on micromanaging individual company financing decisions? Take ECB rate ceilings for one. They say for accessing foreign loans of 3-5 year tenor, the current interest rate cap is 200 bps over six-month LIBOR. For loans maturing beyond five years, the ceiling is 350 bps above LIBOR.

[Today 6 month LIBOR is 3.10 %. RBI wouldn't let Indian companies borrow at rates in excess of 3.1 + 2.00 =5.1% for loans of 3-5 year tenor. Contrast this with Indian bank PLR of 14-16%. Now which is beneficial to a borrower? Do the math.]

I have a client that is badly in need of funds to complete its commercial complex that is in its last leg. We have identified a willing lender in a foreign bank. But regulations stand in the way.
Now why would RBI strangle business plans? Well, I can understand the borrowing risks borne by individual companies do translate into an overall country risk. But this problem is already addressed by the overall annual cap on foreign commercial borrowings. Within the overall quota, the government must accommodate smaller companies, which may have to pay somewhat higher interest rates. Currently the bias clearly appears to be in favor of big corporate houses and, in fact, 30 per cent to 40 per cent of the foreign borrowing quota every year is cornered by three to four big industrial groups. The small- and medium-size companies suffer the most in an economic slowdown as they do not have the muscle of big businesses to withstand the pressures of business cycles. The Government by its diktat prevents them from borrowing at a higher cost, slamming the only way they can get lenders interested in them. In these times, policy must provide them succor rather than make things more difficult.

A company is best placed to assess its own risks. If a small company can manage its business efficiently even after borrowing a little dearer, so be it. Take the case of my client. Even if it borrows at 500 bps above 6m LIBOR, it would still be borrowing at just 8.1%, which is a good 600 bps below Indian bank PLR! But RBI says it's ok if you sink deep into high cost Indian debt, but says no to significantly cheaper foreign loans. Isn't this ridiculous? That too when we have a problem of surplus foreign currency reserves at about $300 billion at the last count! The industry is demanding this be relaxed in view of the general uptrend in interest rates globally. To the extent interest rates have moved up globally, it makes sense to relax the interest rate ceilings.

Will RBI relent? It will have to, soon. The Prime Minister’s EAC read the tea leaves and is confident of the ability of the financial sector, as also the maturity of the corporate sector to support the higher growth process. But for that to turn real, RBI should let loose all those strings.

any which way the cookie crumbles

Did you say, bad times for I-bankers? Oh, Really...?
The smarts don’t buy it. They make money every which way. If they don’t get to do enough deals, they’ll make money undoing it.

"Yahoo shelled out $36 million in the first half of 2008 to the outside advisers that helped the company navigate stormy buyout talks with Microsoft and the ensuing proxy threat from activist investor Carl Icahn.

Yahoo leaned on investment banks Goldman Sachs Group, Lehman Brothers Holdings and Moelis & Co., and law firm Skadden Arps Slate Meagher & Flom, after Microsoft made its initial $44.6 billion offer, which was made public in February.

The negotiations collapsed in early May when Yahoo rejected an even richer $47.5 billion offer, but Microsoft came back later that month with an offer to buy Yahoo's search operations a la carte. As that failed, Icahn, who has a long history of challenging corporate boards, threatened to replace all of Yahoo's directors with his own hand-picked slate so he could negotiate a sale.

Yahoo's $36 million tab, disclosed in a regulatory filing, amounts to about 5 percent of the $673 million in profit Yahoo reported in the first six months of the year."
So, now you know the name of the game... it is survival...!!! Fling a deal and see if you can pull it off; and if you can't, make sure that it's botched right ;)

Wednesday, August 13, 2008

Something is gotta' give

As I sat listening to that lilting Phil Collins number – "One more night...."

"Please give me one more night, give me one more night
One more night cos I can't wait forever
Give me just one more night, oh just one more night
Oh one more night cos I can't wait forever
Something rhymed deep inside... A chime....?
Yeah, got it! My friends working in I-banks have just one prayer these days - God, give us just one more bubble - like that famous Phil Collins song... First, some M&A deal stats –

No. of transactions - 663 in the H1-07 to 467 in H1-08, with a sharp slump in deal value dipping by over 40% from US$38.4 billion in H1-07 to US$21.4 billion in H1-08. The active sectors include Pharmaceuticals, IT&ITeS, Banking & Financial Services (BFSI) and Real Estate. The outbound investments accounted for US$ 8.2 billion of M&A activity spread over 96 deals.

Financing overseas acquisitions has been tougher owing to the global market conditions and high interest rates. The global crisis sprang from expanding credit squeeze, high oil prices and rising inflation and now they cause slowdown in M&A activity in H1-08.

Even the macro numbers aren’t giving room for hope. The Prime Minister’s Economic Advisory Council (EAC) has revised the growth rate down to 7.7% for 2008-09 from its earlier estimates of 8.5% (and last 4 year average of 8.9%). Rubbing salt in the wound, It also expects inflation to scale 13% soon. Takeaways –

Trade deficit is likely to widen to 10.4% of GDP in 2008-09 compared to 7.7% in 2007-08. Merchandise imports would grow to $332 billion, Exports would grow to $205 billion, leaving a deficit of $127 billion. Export growth could be $22.5% while import growth would be higher, thanks to high crude prices.

High oil import bill and a decline in capital flows are pushing current account deficit to an all-time high of 3.2% of GDP during 2008-09. The estimated deficit for the year is $41.5 billion. In Q1/Q2 of 2008-09, deficit could be over 4.5% of GDP. The estimated 3.2% current account deficit for 2008-09 is more than double the deficit of 1.5% in 2007-08. The only year when it crossed 3% was 1990-91 — when it touched 3.1%, as we were facing a major foreign exchange reserve crisis. The silver lining now is that forex reserves stand at over $300 billion — far above the comfort level.

Capital flows would decline to $71 billion in 2008-09, far lower than the previous year’s $108 billion. Despite the decline, the net addition to forex reserves would be $30 billion.

Now to fiscal mismanagement. The government comes down heavily on private sector for not being transparent about its currency losses. But when it comes to its own affairs, it sweeps a lot under the carpet – think off budget Oil / Fertilizer subsidy funded by bonds that pose serious risks to the extent they are unfunded in the budget. But then you can’t speak much about that.

Just hope something is gotta’ give! Another bubble...? I don't mind... ;)

Sunday, August 10, 2008

Domestic VC firms get a reprieve

The new guidelines, being drafted by the finance ministry and the capital market regulator SEBI, may not allow VCs to invest in listed companies and restrict them only to startups.

I see this as an attempt to remove the differences in treating foreign and domestic VC funds. One of the aspects being reviewed is the minimum capital required for VCs to set up shop in India. Currently, domestic VCs need to have a minimum capital of Rs 5 crore to operate, while foreign VCs don’t have any such requirement.

So end of the road for pipe investors? Not really. I say this to PE firms. Mature. Now that valuations are beaten down, start looking for buyouts (or buy-ins). Act like a true blue private equity investor. Don’t harp at pre-IPO minority stake buys, listing gains and easier exits. Develop specific domain expertise and prowl for worthless company managements that are badly screwing up shareholder wealth. Believe me, there are plenty of them across the listed segment – Large cap, mid cap and small cap. Get immersive, play active roles in shaping the fortunes of those companies and see if you can truly make a difference.

If yes, you’re in the game. Stick around and have fun.

Wednesday, August 06, 2008

Unjust enrichment - ESOPs for nominee directors?

Has SEBI yielded to the pressures of IAS lobby? It seems likely.
Financial Institutions (FI) and Banks that take direct exposure in companies nominate their representatives in the Board of the assisted companies to safeguard their investments. They ensure that no decisions affecting the interest of their employers or that as might jeopardize the return on their investments should be taken by the company boards. So to the company concerned, these people offer no strategic value. In reality, they just pocket the sitting fees and incessantly nag the company managements with requests for availing company guest houses (or shamelessly ask for hotel accommodation where no guest houses are available) for their family vacation or call for their cars for their family trips. At the board meetings, they are busy devouring the fried cashew nuts and feeding on anything that looks like food while the managements play havoc with the enterprise (declaring dividends even as the company is reeling under high cost debt, siphoning off company funds by way of unsecured inter-corporate loans to below investment grade (promoter) group companies at low interests, passing liberal executive remuneration resolutions, writing off personal expenses of directors). Remember, the appointment as nominee flows directly from their employment with the investor institution.

Now these nominees are being allowed entitlement for ESOPs from the companies where they are nominated. Here is a funny story of two LIC directors on the Board of L&T fighting it out :-)

Last year, there was a two-month face-off between LIC and GIC and their nominee directors, B P Deshmukh and Kranti Sinha, on the board of Larsen and Toubro (L&T) after the nominee-directors refused to return shares allotted to them by the construction major in spite of directions by both the institutions that its nominees should not accept any Esops. Sinha and Deshmukh held 20,000 and 30,000 L&T shares, the market price of which was Rs 3.5 crore and Rs 5 crore, respectively, at the time.

The two financial institutions moved the Bombay High Court to bar their nominee directors from dealing in these shares. Both directors lost their jobs on the L&T board. The matter was later settled out of court after the former directors returned their employee stock option shares to the company. After this, all financial institutions that hold equity stakes in various companies had written to them asking them not to issue Esops to their representatives to avoid a similar situation.
I have a few questions –

a) Aren’t nominees just what they are - employees of investor institutions? How can they be entitled to a perk that is available to the permanent employees and non-wholetime directors of companies even as their attendance at the board meetings are only to protect the interest of their employer?

b) Where does the loyalty of the nominee (post ESOPs) lie? To the management of the company that enriched him or to the PSU employer that pays him a piffling salary in comparison?

c) How can the employer expect the ESOP awarded nominee to protect their interests? Why would they go against the company that enriched them?

d) What strategic value could the nominees offer to the assisted company that belongs to an entirely different vertical? Let’s say an IDBI nominee (a banking professional) in the Board of a power company - can he ensure leakproof transmission and distribution of power? (Now don't tell me he could suggest low cost financing measures - we know how financially savvy they are; just take one look at earnings growth of their parent institution itself. You get the picture?

Tuesday, August 05, 2008

Sleight of hand or indifference?

Ah, well there you have it. Companies reporting financial results in ways as are most convenient.
Under the Indian laws, Companies prepare accounts for two different purposes under two different set of regulations. The one under Schedule VI of the Companies Act, 1956 for statutory purposes and shareholder review. Another is in compliance of the Income Tax Act, 1961 that is recognized by the Income Tax authorities. While the former lays emphasis on disclosure and shareholder information, the latter stresses on revenue recognition and tax compliance. Often there are divergences between the two because of which the financial results are often at a variance.

For example, Schedule VI of the Companies Act permitted companies to adjust the exchange gain/loss to the cost of fixed asset. So if a company bought a fixed asset for $10 (Rs 400) with a forex loan and suffered an exchange loss of say Rs 30, it could add this loss to the cost of the fixed cost (Rs 400 + 30). They get to claim depreciation (read tax savings) on that inflated cost of the asset as well.

And then there is the accounting standards prescribed by ICAI that falls somewhere between the two. ICAI AS-11 calls for recognition of this loss of Rs.30 by charging it to P&L account without adjusting the actual cost of the asset (which is eligible for depreciation). The existing treatment allowed companies that had foreign currency borrowing for acquisition of assets to inflate their assets position on account of adjustment of exchange differences every year. The companies that did not resort to foreign currency borrowing for acquisition of assets had a disadvantage as they were required to write off their financing cost in the profit and loss account.
As of now, the first-quarter results of several big companies such as Reliance Industries, Reliance Communications, Bharti Airtel and Jet Airways would have been a lot worse had they followed the Accounting Standards (AS) 11 rules prescribed by the Institute of Chartered Accountants of India (ICAI).

Even under the International Accounting Standards (IAS), Prior to the 2003 revision of IAS 21, an exchange loss on foreign currency debt used to finance the acquisition of an asset could be added to the carrying amount of the asset if the loss resulted from a severe devaluation of a currency against which there was no practical means of hedging. That option was eliminated in the 2003 revision. ICAI too followed suit in 2003.

But reading that news item gave me scope to laugh a lot. The excuses of Reliance Industries, Bharti, Jet, sound so flimsy. Most of them have taken refuge under legal opinions (many retired judges depend on it for their livelihood) that are available for a price. Reliance Communication chose not to respond. When you are living in denial and trying to fool yourself, silence is the best option.

Or is it indifference?

Monday, August 04, 2008

The charity incentive

“The Inflation can drop below 8 % if confluence of factors like fall in global crude oil followed by a good monsoon work”, says Prime Minister's Economic Advisory Council (EAC) Chairman C Rangarajan.

It touched 11.98 per cent for the week ended July 19.

And then? The improved fiscal conditions would be used as an excuse to pursue populist schemes in an election year. The government already have to fund the generous farm loan write offs ($18 billion at the last count) and the liberal pay hikes to the government staff ($5 billion in arrears and $2.5 billion annual outgo). The latter is now deferred (a bungling government waking up to the folly?) emphasizing the thoughtlessness of the award. Now I think of the majority tax paying tribe that gets no benefit from any of it - the non-government employee citizen or a farmer with no loan outstanding. You think I am biased? Here is Moody’s rating, for the record !

I might rather donate all my taxable income to the Red Cross. That will make me feel a lot better.

Friday, August 01, 2008

Doc says "Drug all analysts for a while"

What do many financial analysts and business media have in common? A drive to talk our economy – into a depression.

To begin with, they over-research the financial services sector (FSS) and extrapolate it into their broadbased prophecies. Go tell them FSS is not the whole economy. FSS (at Rs.1.65 trillion) account for just under 14% per cent of India’s GDP (Rs.12 trillion). Ranting against RBI for its three rate hikes in two months betrays poor understanding on their part.

I ask them to set their clock back by about 5 years and take a peek. Back in 2002-03, we had rate drops in quick succession that drove up bond prices, when banks and bond funds declared phenomenal returns. Now it's just the reverse of that and such shifts in dynamics only confirm the prevalence of a cycle and hence room for hope that they will go back to where they came from. What matters at a world level and for countries is that total nominal demand should be rising fast enough to support a sustainable rate of real growth but not so fast as to generate runaway inflation. That’s exactly what Guv. Y.V.Reddy sought to rein in by hinking repo and CRR earlier this week. In spite of India’s exceptional experience in this “nice” (non-inflationary, constantly expansionary) decade, this demand expansion is rarely going to take place along a simple straight line, but it makes sense as an average over a period.

The world economy as a whole has clearly hit the buffers. Demand growth has been too high for world supply potential. This is the common factor behind the rise in oil, food and commodity prices, which has struck the OECD countries as a rise in imported inflation. At present, commodity overheating in some of the BRIC (Brazil, Russia, India, China) countries coincides with economic slack in Europe and North America. This is no more paradoxical than the situation that confronts central banks when some regions are depressed and others over-buoyant.

No one really knows what the permanent element is in the rise in oil, food or commodity prices. [Is it surging demand, squeezed down supplies or flip side of derivative positions in oil futures market?] Even if there is a long-term upward trend in these primary prices, there is likely to be a temporary fallback. Meanwhile, shall we ask the analysts to just shut up, stop staring at the screens and prognosticate?