World
Time to call the US Fed's bluff and get long gold
Recall that the median forecast was for three Fed rate hikes in 2016 only two months ago
 
Global financial markets have started to price in a global recession since the beginning of 2016. The Fed raised rates for the first time in almost a decade but the price action has been extremely counterintuitive: US yields down, US Dollar Index down and gold rallying through the key $1,200 level.
 
There has been a huge repricing in the federal funds futures market with the bond market now pricing in only a 20 percent probability of another interest rate hike in 2016.
 
Recall that the median forecast was for three Fed rate hikes in 2016 only two months ago.
 
Investors are now questioning the effectiveness of future central bank ammunition to fight a slowdown in economic growth and demand. The discussion has now shifted from the pace of monetary tightening to what type of easing is in the pipeline. Will we witness negative rates or helicopter drops by global central banks in the coming quarters as financial conditions worsen. 
 
Are negative nominal rates effective? Can they lead to reversing deflationary trends and boosting aggregate demand? If not, are currency wars or devaluing domestic currencies to produce growth the next logical step? If so, will these devaluations be a zero sum game with clear winners and losers? What about the good old fiscal policy prescriptions? If monetary policy is indeed ineffective (the prevailing mood in the market!), how much political capital do policymakers have to pull the fiscal levers? 
 
The policy of borrowing from future earnings to repay todays debts has tested investors' patience on many occasions since the financial crisis. Thus, anything short of carefully thought out and well executed structural reforms will immensely disappoint the markets.
 
Only time will tell which of the above scenarios plays out. We have seen Japan going into negative interest rate territory in recent weeks and the yen has appreciated and the stock market failed to rally. Similarly, ECB President Mario Draghi has done all he could to talk down the euro with more QE talk but the common currency has been holding up.
 
Clearly, markets are not behaving as per central banks' expectations.
 
Gold prices are a function of many variables - real interest rates, the US dollar, inflation expectations and the trend of the broader commodity market. However, in recent times it is simply a play on global volatility and global systemic risk. So if financial conditions do worsen from here, expect gold to rally through the $1,325 level and in extension $1,460 even if the USD is bid as a safe haven and commodities are falling.
 
Central banks and the effectiveness of ultra-loose monetary policies have proved to be ineffective. Expectations of more QE and negative rates to generate growth is simply wishful thinking. If things play out like 2008, the only silver lining is to remember that there was a March, 2009. 
 
The time to buy distressed equities will come but it is not now. This is the time to hedge against another global crisis and buy gold.

 

Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Women Power

Majhi Maitrin is a multi-faceted, sensitive and socially pro-active organisation for the betterment of women

 
It started with one woman’s entry into trade union activities. She was working in a multi-state cooperative bank. The woman was Shaila Limaye and her experiences led to a journey into social activism. Recalling those days, she says, “I used to fight for equal rights for women and took strong objections to incidents like men deliberately using ladies’ toilets to embarrass the women. Such incidents influenced me to actively join the trade union movement. I was transferred to the Mumbai branch as a pressure tactic.” But Ms Limaye refused to be cowed down.
 
She worked on programmes for empowerment of women through the trade union. She also worked at changing women’s mindset towards financial independence, social security and personal dignity. It was around then that Ms Limaye felt the need to expand the scope of her work and to do more for women, in general. Thus, Majhi Maitrin Charitable Trust (MMCT) came into being with the objective   of self-employment by cooperation of women as its first pilot project. As the founder of MMCT, she began to work full-time for the cause of disempowered women.
 
Majhi Maitrin means ‘my friend’ in Marathi and the organisation embodies the spirit of friendship beyond all social barriers, age or wealth. Progress on the right path through cooperation has been its goal for the past two decades. Initially, the primary goal was to provide self-employment to underprivileged women. This includes production of handmade, embroidered jute products; training to produce chutneys, pickles, etc, on a commercial basis, running community kitchens on a collaborative basis to generate income. Once they were financially secure, the maitrins also learnt to be more independent and saw an increase in their self-confidence and self-esteem; it also nurtured a will to oppose social injustice. The initial funding for MMCT came from its trustees, Abhay Nalawade, Murali Cherat and Subhash Sawant. Prabhakar Karandikar (a former IAS officer) was an able guide for official and procedural matters. 
 
MMCT conducts innumerable programmes to make women aware of their legal rights and privileges. Gradually, it began to offer scholarships to girls who found it difficult to finance graduate and post-graduate studies. These women have, over time, emerged as able and confident women. 
 
“Financial and social security are only two of the many factors for a successful life but adding values and substance to this evolvement requires cultural uplift,” says Ms Limaye. Towards this end, MMCT organises thought-provoking debates and seminars on current social issues. It runs a free library for senior citizens in cooperation with Kusumagraj Pratishthan. It has instituted the ‘Suhasini Karandak’ award which is presented to amateur women actors for one-act plays. Through such activities, MMCT has developed a strong group which meets on the fourth Tuesday of every month for a series of activities such as book discussions, talks by eminent persons or entertainment and music programmes.
 
On more serious issues, MMCT has initiated a cell to help, support and fight for victims of sexual harassment at workplaces. A recent interaction with a transgender individual by Ms Limaye revealed rampant atrocities suffered by this downtrodden class for years together. No work opportunities are offered to them. A few, who have managed to acquire some qualification, are not offered jobs; they are not even engaged for manual labour. So they are forced to turn to aggressive begging or prostitution. MMCT is planning to find work opportunities to draw them away from these practices.
 
MMCT recognises the noteworthy work of other individuals and NGOs and felicitates them through two prestigious awards named after legendary women reformers from Maharashtra, namely, Savitribai Phule and Pandita Ramabai Ranande. Readers are welcome to donate to Majhi Maitrin Charitable Trust. Donations are eligible for benefits under Section 80G of the Income-tax Act. 
 
Majhi Maitrin Charitable Trust
Row House B/1,
Shrinath Hermitage,
Someshwar Wadi,
Pune- 411008, Maharashtra.
Mobile: +91 9923491018.
 

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