Secondwaves,underlyingthreadsandaRussianinsight

The Dow Jones moved up by 329 points in yesterday’s trading, a 1.1% rise, closing the day at 29591 points. The 14^th Feb pre-covid peak was 29551. The Dow futures are currently up by a further 300 points in the Asian trade. The Nikkei is up 2.7% in the morning trade. US 10 year yields are trading at 0.86 after yesterday’s low of 0.82. Gold is trading at 1824 $/oz against yesterday’s high of 1875$/oz. The parameters point to optimism and risk on predicating on vaccine news and easy liquidity and shrugging off the bad news on the second wave of new infections.

On the covid front, with the number of cases rising in India across different states, many new measures are being put in place. The state of Maharashtra yesterday announced that travellers from certain states need to provide the covid negative report before entry into Maharashtra. This will seriously curtail any kind of nascent pick up which was seen in travel. More steps like this will follow but a complete lockdown like in March and April looks unlikely.

But at this juncture it would be a good point to put forward the rhetorical questions - Why do the viral infections have this wave tendency? Is it something unique to viruses or this wave like pattern is a more generalised phenomenon? It appears that this wave like nature of many phenomenon like stock market boom and busts, industrial cycles or virus pandemics (till the time a potent vaccine is built) has a similar thread running through them. The pattern is like this: things start innocuously, optimism comes in, more and more join in, enthusiasm leads to profligacy, guards are down, mistakes happen and then stampede. The next cycle then again picks up from the shards of the previous bust, cycle starts again.

In the case of the virus, good news on low cases is followed by a period of laxity and overconfidence, sowing seeds of lethal spread again. Once the vaccine comes in a crucial link in the chain gets broken and normalcy returns. In case of business waves this is not the case (because there is no euphoria vaccine). A Russian/Soviet economist Nikolai Kondratiev propounded his wave theory in the context of long term economic cycles which were later called Kondratiev waves after him. His basic insight was that throughout economic history we can identify various waves which start with some kind of innovation (example like industrialization / steam engine etc). The breakthrough technology creates opportunities, which firstly causes prosperity and then leads to inequity which leads to unrest and chaos. The cycle then continues with another innovation. Mainstream economists though were not very impressed with the simplistic causation offered by Kondratiev and it was relegated to margins. Readers would do well to use it more as a thought tool then anything else.

In other news there are some positive signs on the Brexit front which is visible in the pound strength. Yesterday it touched a two month high of 1.34 against dollar. But having heard such stories multiple times before. The news that Trump administration has agreed to allow the transition with some noted republicans asking the incumbent to move on has also added to optimism. Rumours around the new treasury secretary’s name is also rife with former Fed Chief Janet Yellen being the front runner.

Domestically rupee has open strong breaking 74. The benchmark bond trades at 5.90. Equities are in the positive mood amid good FPI inflows.