Sometimes you feel as if you are on a precipice, the task uphill overwhelms you while downhill is not underwhelming either. But there is a certain degree of equipoise, when you are standing on a strong footing but moving nowhere.
Being on a precipice is as common as a walking on the road if you are on a trek. And the world is on a trek, not on an easy road where every move is well charted out; you know some moves and you risk the others and then you must test your hypothesis.
But when you are on the precipice you are awestruck, stunningly unaware of the calls that could lead to the right outcomes against the range of alternatives. The choices seem to be simple but painfully risky or they appear listless in the backdrop of where you are perched against the environs of uncertainty.
Take the equities for example for S&P 500 and you will see the great wall of fame perched against the bond market and both have a dance against the central bank rates, which have been low for a protracted period of time sparking a frenzy of sorts that neither bodes well for long term bonds nor for the stocks.
If you are thinking about the intrinsic value in equity, it has no absolute sense as long as it is seen against a basket of other key variables. What will be the value of the equity if the rates surge by 3%, will be the sensitivity to look at. There is this equipoise set by opposing forces of interest rates, bond prices, long term yields, commodity and the equity market variables.
Most economies of the world are similar to this equipoise one would find themselves in; the precipice is for real given that the limits that markets pose on one hand do not buoy against the rising hopes of the bond holders with a staggering baggage they tend to be engulfed in.
Corporate bonds have rallied, at least the top ones have, while stock buy-backs have seen the most one could possibly imagine for any time to come. But this is a move that is fraught with risks, if the only way the stocks have moved is through the buy-back route then this is not a music that can be everlasting.
The low end of the bond market is where the attention on the precipice is and with rising rates we have a posture that every bond holder knows, the time must be right.
For economies like India, the precipice has many sides, the supply side is so much browbeaten, but still the infrastructure remains at the receiving end of things. But some actions on the demand side will be good and is already forthcoming like the relief on indirect taxes, which is like giving money directly to the consumer. But again this is on the demand side we are focusing too much about.
If we aim to spend our way out, we have a problem as well. We squeeze the fiscal imbalance further and with banks where they are we have a task cut out on a thin edge.
When you are on the precipice, you must check your moorings, test the feet where you have just stepped; touch the ice and see the warmth. If you are testing the hardness, you need not be wary about some soft nudges here and there. But then you will get to where you were standing in the first place.
More spending by the consumer will be always good, it better be. But the focus also needs to be put on the investment goods as much it will be on the consumption goods.
The equipoise on the precipice will hold out; some movement is always good as long as the movement is secure and firmly grounded.