A little before the crisis hit us unprepared and accentuated the phenomenon, the past decade has seen an excessive reliance on macroeconomics. Prior to this, data like GDP growth, FED rates, repo and trade balance belonged to the haloed but sidelined bunch of people, while ideas like global liquidity, bankers' pay, incentive structures, and the G20 were traded among lonely ivory towers. Overnight, names like Nouriel Roubini, Raghuram Rajan, Joseph Stiglitz and Michael Spence have become the equivalents of economic rock stars. And the markets have begun to follow them - the herd mentality remains a constant.
But speak to money managers, and they seem to rattle these data and ideas by rote. And I am beginning to suspect that by leaning a little too heavily on these large, untouchable and fuzzy numbers, fund managers are really finding reasons for not being able to deliver returns. The model of generating returns has changed too. Regulatory disclosures have virtually done away with insider trading tips as a sustainable model, while technology and supercomputers have all but replaced the quants and their arbitrage opportunities.
True, the pressures of a global implosion - hyper-leveraged nations with hyper-lax regulators allowing hyper-low interest rates - have taken their toll on the economies of countries. Add to that the rising oil prices and all time high food and commodity prices across the world and what you have is high inflation in developing and growing economies like India and China. Making matters worse, these economies are watching extreme asset price inflation, to counter which their central banks are raising interest rates.
As a fund manager, I would be delighted with so much financial uncertainty - if one day there is gloom because of falling GDP growth, the next day it will be boom as oil prices fall by $5 dollars a barrel. So, in all brokerage reports, we get signals that tell us that all is not well on the macro front, inflation rate remains high, government needs to cut interest rates, increase spending in order to get out of this problem. They forget that even at 8%, India will be among the fastest-growing trillion-dollar economies of the world, interest rates and slow economic reforms notwithstanding.
It is time for some brave new fund managers to buck the trend. Some are doing that already, but their numbers need to rise. Here's how:
* Get back to basics - look at companies are performing, not just industries or countries.
* Search for companies with innovative products and practices and invest in them.
* Have greater faith in what you tell us - bad times are investing opportunities.
Whining about macroeconomics is the lazy fund manager's escape route to tell investors why he has underperformed. If we want market returns, we'll buy index funds, not pay you to manage our money. Blaming macroeconomics is like shifting responsibility to climate change - there's little you can do about it but a lot you can do to prempt it, manage it, work around it.