In 2003 to 2008 it was perhaps not so difficult to trace the risk. The banks were holding the dubious assets and the risk was in their books and in the bonds that they held. Of course the bonds were held by many corporates and the risk was there.

However, in 2017, I can see and feel the risk, but cannot say where it is. I can feel it, smell it in the air, hear it, but have no clue where it is resting. It is somewhat like a tiger hunt – the tiger being the risk in India.

Why am I saying this?

Central banks all over the world are printing notes and these notes have to do the following:

• reduce interest rates (obvious)
• inflate commodities
• inflate assets
• inflate gold (treating it a little different from other commodities).

This means the corporate world will get (is getting) money real cheap and they are likely to borrow more. When money becomes cheap corporates go and do acquistions (happening) and do their own share buy back (happening in US but not in India). However, even in India many corporates are going in for buy back – and this comes from the fact that the short term/ long term debt opportunities are lousy.

Yes mispricing assets is happening, but commodity prices are refusing to go up. Even the users are refusing to stock up the commodity that they will need in the future. The Futures price of crude is still not very healthy. So the assets inflation has not happned in a big way – at least not in India.

Corporate buy back of share is not reached alarming levels, but Infosys price seems to be unsustainable and once the buyback is over it may not sustain a pe ratio of even 14….and that might be embarrasing. Most Indian corporate short term debt is lying in banks and not in mutual funds!

Gold has not reacted much..and that does not mean you cannot buy gold for keeping in the bunker…just in case!

Real estate has not inflated much…and that is surprising…I have no theories on any game.

SO WHERE THE HELL IS RISK? 

I can only guess. Risk is not in the bank balance sheet in India. RBI has been chasing banks to clean their books, so many banks are now clean, Well, reasonably clean. However idbi bank and Indian bank maybe up shit creek too.

In so many years of investing I have not come across of 4/5 mad central banks which will NOT ALLOW ASSETS to find their market dependent prices. See the statements that they make “we are targetting a 0% yield for the 10 year paper”. If G Sec yield is zero, your AAA has to be 0.25bps at best. If a corporate can get debt at that rate, there is a good chance that he will buy SHIT or buy his own share/ stock. I do think that is risky. So risk is in shares whose prices are not justified by their cash flow. Did you hear Amazon? netflix?

I am scared that the US indicators are similar to what it was in 2009 but the Oracle of Omaha does not see it as a bubble. Not yet.

I am scared that the PE funds are willing to take many companies private so that they can add value!

I could see what kind of asset holders would go burst – the guys with too much leverage. Today the leverage is in the books of the RBI or other Central banks. i do not understand that. What to do?

I am scared that PE funds will unnecessarily make risk reduction a joke – because with asset prices being controlled by the Central banks (buy bonds at any price) one has no clue how the whole thing will end. I have no clue for sure.

Risk: Goes on leave once in a while…