Has the global population halved to three billion? Have the millions of young, aspiring Asians who were going to buy big cars and tour the world suddenly vanished? Have the big industrial centres of the East stopped guzzling fuel? Have airplanes stopped criss-crossing the globe?
Then, why is the oil barrel flirting with $50?
Burgeoning demand from developing nations would take the oil barrel to $200, we were told by top Goldman Sachs analysts in 2008, when it was still around $125. Oil rose to $147 before cooling in the $100-$120 range over the next six years. Then came the slide, which makes me wonder if we are not unable to see the coming apocalypse which will make one or all of my four questions turn affirmations. What are the oil traders seeing that we are unable to?
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That is the problem with linking asset prices with economic fundamentals. In the absence of a better measure, the stock index is often described as the barometer of the economy. But, is it?
Time and again, we have been fooled by the barometer. The barometer says the economy is going to boom. But, the economy goes nowhere. The barometer lies like a dead snake, even as the economy goes helter-skelter. They might coincide for a certain period. But, even a broken clock shows the right time twice a day.
Why, then, are economists hell- bent on explaining asset price movements with economic fundamentals? Because, that is what they can do.
Ditto with the technical analyst and the odd astrologer who ventures into predicting stock prices.
When things go terribly wrong, they try and make do with "lag and lead effects" and "short-term anamolies which will get corrected in the long term" knowing fully well we will all be dead in the long term. If nothing works, then call it six-sigma, Black Swan, etc.
The longer you are able to get away, the more "sought-after" you become.
Having thus established that the economy has nothing to do with stock prices, at worst, and only has a correlative, not a causative relationship at best, a better prism, to my mind, to look at moves in asset prices is the movement of money.
For several years, we have had to do with the same data on flows from domestic and foreign investors. It is the same old gross and net investments by mutual funds and foreign investors. With a new foreign portfolio investors regime coming in place, the responsibility of disseminating data of foreign fund flows has moved to depositories. But the format or quality of data has remained same. Journalists and analysts continue to blindly quote daily inflow numbers netted against outflows.
While this gives a broad sense, it is difficult to understand any further nuances. The Securities and Exchange Board of India has all the details about domestic funds. With the increased disclosure norms, the regulator also has more details in terms of geography (US/Europe/Asia) and type of funds (pensions, exchange-traded funds or short-term) investing in the market. A more granular fund flows data will help understand the market movements better. If not disclose all it has, the regulator can at least think in terms of what more it can put out without putting out too much.
