Double Dip or Double Drip!

As we closed 2010 and entered 2011, the all-important debate on what global economies have in store for us emerges, especially since recoveries across the U.S. and Europe are far from convincing. There are a few camps—I refuse to call them ‘schools of thought’—that are talking about a double dip, about the economy potentially declining to the levels of 2008.

A drop with the force of gravity may be on the cards. But would this be in the form of a double dip or, what I call, a ‘double drip’? Unlike the sharp vertical drop of 2008, the gravitational rebound in 2011-’12 might well occur in drips, with much lesser intensity as compared to 2008. Also, its impact on different asset classes and economies would vary vastly.

My views on the likely movements of the various components of asset classes:
* Chinese currency may remain undervalued—to the utter frustration of the rest of the world—without any serious interventions or even attempts to make it appreciate meaningfully.

* U.S. tightening may still not find favor from the Fed Reserve, with an in-charge too pleased to offer more quantitative easing without an inkling of the eventual route to withdraw.

* Gold may continue to move up in terms of the U.S. dollar in 2011 and once again be the best performing asset. This will hardly be surprising, given the not-so-convincing recovery.

* Oil may peak at around Rs.4,500-Rs.5,400 at best before heading back down to form a long-term support for the next decade at close to Rs.2,925-Rs.3,375.

* Metals like copper, aluminum and zinc may head higher still from their closing levels of 2010 by another 10 percent to 15 percent. After that, though, we could see sharp reversals in view of inventories build-up, a less than convincing demand outlook, and withdrawal of liquidity that found its way to the commodities markets during a fetish for emerging markets.

* Agri commodities may be heading for long-term positive trends, with genuinely sustainable and long-term topographic and demographic changes, as the world craves more nutritious food and is willing to pay for it. Accordingly, this could be the start of a long bullish trend in agri commodities.

* Geo-political events may come into play to decide the course of action over the next couple of years, the action being away from the lands of the West. An ideal platform to destruct, re-reconstruct and to have attention drift away from the basic issues underlying the global situation.

* LAICA (Latin America, India, China and Africa) may replace the BRIC as the future growth markets—a ray of hope for global economic growth. The important addition here would be Africa due to its vast natural resources that keep drawing other economies to invest there, despite the difficulties. Africa will be what India was a few decades ago, identified with snake charmers and culture.

* India may continue to see consumer price inflation in a seriously uncomfortable zone, though the levels in 2011 might be muted due to the higher base effect. Also, interest rates might peak as we get closer to the double-digit mark. There are unlikely to be any serious threats to the consensus forecasts of near 8 percent GDP and economic growth, and there could be reasonably acceptable progress on the fiscal and monetary front, backed by decent growth and government measures.

So, here’s wishing all our readers an exciting 2011, as it surely will not be a boring year!

The views expressed here are personal.

Tags:
Bharat Banka, double dip, global economy