It's the season for anger and conspiracy theories. These are the two emotions that have surged among investors. While those who hang out in the investors' ghetto's on social media are always unrestrained in their opinions, I've also noticed this elsewhere in recent weeks. For example, the large number of emails and comments that ValueResearchOnline gets from readers. Normally, we get a restrained crowd which sticks to mainstream advice-seeking and some mild criticism of a particular fund or some analyses. Most people are still like that, but for a significant minority, the mood has changed. When someone expresses an opinion, some of the criticism is angry, even abusive.
While anger may be understandable, if not justifiable, what has come as a real surprise to me is the hugely increased tendency to conspiracy theories. An extraordinary number of people seem to believe that there are some hidden forces behind everything that is happening. The biggest example of this is the apparently widespread belief that India's foreign exchange crisis has been deliberately caused by political parties in preparation of bringing in foreign slush funds in order to fund the elections. There are detailed blog posts that have graphs showing how the rupee always falls before elections. That even the highest possible estimates of election expenditure would be a miniscule proportion of the total rupee trade doesn't seem to matter to those who believe this.
Some people have actually tried to sanely explain this in some way but the most plausible explanation is that there is nothing to explain. Many years ago, there was this Hollywood movie named 'Conspiracy Theory'. The main character of the movie believed in all sorts of conspiracies and this being before the age of Twitter and blogging, he would actually print a newsletter about them and try and sell it on the streets. One of his theories was that the US space shuttle Atlantis was testing an earthquake weapon. He had authentic newspaper clippings to prove that during every single one of Atlantis' missions, there had been a significant earthquake somewhere in the world. And he was actually correct as far as that went.
The catch was that he never looked for earthquake-related news items during the times when Atlantis was NOT in orbit. You see, there is at least a magnitude 5 or 6 earthquake somewhere in the world practically every day. If you followed the above technique you could claim to prove that there is an earthquake somewhere in the world every time a cricket test match is played or every time Dr Manmohan Singh speaks in Parliament. Similarly, the rupee has generally drifted down a lot over the last three decades and has had many periods of sharp decline. If you squint hard enough at a graph, you'll manage to discover one or the other of these before whatever event you are trying to connect it to. It doesn't mean a thing.
The rupee-election connection may have got widespread traction on the internet because it fed into something that a lot of people believe anyway about politics and politicians. However, there are conspiracy theorists everywhere. Interestingly, the most common ones nowadays don't actually have a specific theory but are convinced that there must be some sort of a conspiracy. A formerly reasonable person suddenly reveals a new side of his personality, “Five years the markets haven't risen and now the rupee has also collapsed. It's a big conspiracy.” Of course, our economic fundamentals are such that it is actually more likely to be a conspiracy that the equity markets and the rupee hadn't fallen much till now.
The fact that the immediate cause of the crisis is an action (or the threat of an action) by the US Federal Reserve adds to the fun by resurrecting the old ghost of the foreign hand. The government's constant blaming of 'global factors' actually add to this atmosphere of paranoia. The fact is that there isn't any aspect of the current crisis--whether at the macro level, or in the markets--that is not completely and obviously explainable by facts that have been openly known for long. It's not comforting to see quite so many people so readily believing that there is some hidden mechanism at work.