With the ongoing economic crash in China and the US Fed increasing interest rates, there is a lot of volatility and anxiety the world over. Several economists and investors were bullish about China over the last few years. I felt that it was a good time to re-read Saurabh Thirani's Spot the Next Economic Bubble (2012) which was quite prescient about China.
Saurabh Thirani, an XLRI MBA and an IT professional (he makes the disclaimer that he is not a professional economist), writes in his book: "Most were expecting China to be the next engine of growth. I think many would be disappointed. China would be the next bubble waiting to explode. And a recession in China would hurt the world more than Europe or India.... A slowdown in China is something that can be expected in the near term." (I believe that China and other emerging markets may be going through a temporary phase but the 21st century is still going to be Asia's century.)
Thirani's point of view is grounded in the Austrian school of economics, founded by Carl Menger almost 250 years ago and resuscitated by Ludwig von Mises and Friedrich Hayek.
The Austrian school is based on free-market economics and I am inclined towards their way of thinking as I find it to be a powerful antidote to the approaches of the Keynesians and the monetarists. The appealing thing about Austrian economics is that it does not go in for complex quantitative modeling. It instead uses deductive logic for analysis and predictions.
Austrian economists have been able to predict the Great Depression, the dotcom crash and the 2008 crisis (among others) well in advance. Thirani, using the same methods, sees another crash forthcoming in the near future.
Morgan Stanley's Ruchir Sharma, in a recent interview, buttressed this view by pointing out that there is a recession every eight years (on average). And now it is eight years since 2008. I feel the next recession will be far deeper and painful than the 2008 one.
As far as India is concerned, investors talk about a secular bull rally but I am skeptical. I am a believer in the long-term Indian growth story but Ruchir Sharma pointed out (in the same interview) that in 2015 the total sales growth rate in Indian industry was 0% and the earnings growth was -5%. With these kind of numbers how is it possible to sustain a long bull rally?
I am more prone towards Thirani's pessimistic views about India: "Even in India, the likelihood of an Austrian style bust is extremely high and will necessarily cause a destruction of wealth - though maybe not of the same scale as in the US, Japan and Europe because India is relatively smaller than these economies."
2016 is probably going to be a bad year globally.
Saurabh Thirani, an XLRI MBA and an IT professional (he makes the disclaimer that he is not a professional economist), writes in his book: "Most were expecting China to be the next engine of growth. I think many would be disappointed. China would be the next bubble waiting to explode. And a recession in China would hurt the world more than Europe or India.... A slowdown in China is something that can be expected in the near term." (I believe that China and other emerging markets may be going through a temporary phase but the 21st century is still going to be Asia's century.)
Thirani's point of view is grounded in the Austrian school of economics, founded by Carl Menger almost 250 years ago and resuscitated by Ludwig von Mises and Friedrich Hayek.
The Austrian school is based on free-market economics and I am inclined towards their way of thinking as I find it to be a powerful antidote to the approaches of the Keynesians and the monetarists. The appealing thing about Austrian economics is that it does not go in for complex quantitative modeling. It instead uses deductive logic for analysis and predictions.
Austrian economists have been able to predict the Great Depression, the dotcom crash and the 2008 crisis (among others) well in advance. Thirani, using the same methods, sees another crash forthcoming in the near future.
Morgan Stanley's Ruchir Sharma, in a recent interview, buttressed this view by pointing out that there is a recession every eight years (on average). And now it is eight years since 2008. I feel the next recession will be far deeper and painful than the 2008 one.
As far as India is concerned, investors talk about a secular bull rally but I am skeptical. I am a believer in the long-term Indian growth story but Ruchir Sharma pointed out (in the same interview) that in 2015 the total sales growth rate in Indian industry was 0% and the earnings growth was -5%. With these kind of numbers how is it possible to sustain a long bull rally?
I am more prone towards Thirani's pessimistic views about India: "Even in India, the likelihood of an Austrian style bust is extremely high and will necessarily cause a destruction of wealth - though maybe not of the same scale as in the US, Japan and Europe because India is relatively smaller than these economies."
2016 is probably going to be a bad year globally.
Well written article.
ReplyDeleteThanks Saurabh. It was a well-written book.
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