Macro, Micro and The Monsoon

“Economics is the study of how people and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various persons and groups of society.” Ooops !!! This is how economics is defined. Confusing. Read it again and it will confuse you more. That is what economics is all about. It confuses you more rather than providing a simplistic solution to real issues. The deeper you delve into it, you may get buried under the debris of theories and models.

In layman’s terms, economics studies the behaviour of people in producing, sharing, and consuming resources. There are two main branches of economics, one is macroeconomics and the other is microeconomics. Macroeconomics deals with the bigger picture. It studies and analyses the national and global economy. It churns a lot of data. It analyses government fiscal deficit, monetary policy, unemployment rates, inflation, business cycles, the recession, etc. However, microeconomics deals with mostly localized issues like how businesses are set up and run, how people make financial decisions, and how supply and demand change. Theoretically, the sum of parts of microeconomics makes it to macroeconomics. However, surprisingly, both these subjects use different theories, models, and research methods. Most of the time there is a wide disparity between these two areas of study.

The reason for this prologue is the prevailing noise created by expert economists about the ongoing inflation, the interest rates, the US Fed, the probable recession in the US, and so on. This is been happening for the past six months. The data about the dollar index, crude oil pricing, and the Fed rate hike is being discussed almost every day. This is an apt and rare opportunity for economists to proclaim their knowledge and wisdom. And they are exploiting this opportunity to the fullest. It is their job to gaze into the crystal ball, try to predict and forecast, throw figures and create panic among the common mortals like us. They are saying that the US may go into recession, or may not go into recession. As usual, they are not sure. Is it or is it not? They don’t have a correct answer. All their forecasts are subjective with many assumptions embedded, mostly hidden, and hence their efficacy is doubtful, as always. As stock market retail investors, we need not give a damn to these economists. It is in our interest to ignore them completely. Let us not get carried away by these heavy terminologies and idealistic theoretical models. The stock market does not get affected by all these economic datasets.

So, the first thing first is, what issues you should not be worrying about at all now:-

1. Russia-Ukraine war. Is it still going on? Haven’t we all forgotten about it by now? The world seems to have accepted it as it is. It is time to move beyond.

2. The US inflation and increase in Fed rates

3. The probable US recession

4. The dollar inching towards Rs. 80

5. The crude hovering around $ 100

“Will these factors affect my investments?”

The crystal clear and objective answer is NO, IT WON’T.

As an enthusiast learner of behavioural finance, I urge you not to get swayed by unnecessary noise created in the market. It is good to know about economics as a subject. It will widen your horizon. It may enhance your analytical abilities and research acumen. However, it will definitely not help you in creating wealth. Due to the above-mentioned factors, in the short run, the market may remain volatile. The Nifty index may swing between 18000 to 15000. For the next six months, the market may remain range bound. But how does it matter to the long-term investor? When you are here for the long haul, these small aberrations should never dent your wealth creation aspirations.

When the market is not moving upwards, psychologically, we start thinking as if nothing is happening. We feel as if we are reaching nowhere. This range-bound market activity is the most boring time in the investment journey. The market has experienced such gloomy phases many times in the past and this is definitely not the last one. The market will behave the way it wants to. The market is the king and it knows everything. However, we as retail investors must not get affected by the ups and downs in the market. That is what is called Vipassana Investing. Just sit calmly, keep observing, let go, and be patient. The market loves such behaviour and it rewards these behaviourists handsomely.

The weather in Pune nowadays is picture perfect. It’s drizzling, cloudy, cozy, and romantic. It's time to get wet in the rain along with your companion. It’s an ideal time to enjoy the monsoon with a piping hot cup of tea with pakodas. Leve the macro and micros for the expert economists to worry about.

Before you get drenched in the rains, have a look at these two hilarious quotes on economists.

“The curious mind embraces science;

the gifted and sensitive, the arts;

the practical, business;

the leftover becomes an economist” — Nassim Nicholas Taleb

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.” ― Laurence J. Peter