 "Marc Faber")
How long do you see the global central banks continue with their easy money policies?
Major central banks started with their easy money policies long ago. The first indication of money printing was essentially in 1998 with a bailout via the long-term capital management (LTCM). At that time, I don't think anything would have happened to the system. The central banks printed money massively and deliberately created the NASDAQ bubble. When this bubble burst, they deliberately created the housing bubble that was built on excessive credit growth. And when this bubble burst in 2007 - 08, they started in a co-ordinated fashion to print money by purchasing assets around the world.
The asset purchases by these major global central banks - the US Federal Reserve (US Fed), Bank of Japan (BoJ), European Central Bank (ECB) and the Bank of England (BoE) - have been increasing overtime, though the US Fed has stopped now.
My view is that the asset purchases by BoJ and the ECB will not stop. The balance sheet of the major central banks increased 16 times between 1998 and 2015. So why can't it go up another 20 or 100 times? Money printing is an unlimited action, until the system breaks down.
By when do you see this system breaking down then? Will this bubble created by central bank liquidity across asset classes burst anytime soon?
The bubble can last a long time, one just needs to increase the size of money printing continuously. As a result, asset prices - stocks and real estate - go up phenomenally. So in essence, we have a bull market across asset classes. However, the value of paper money depreciates, as it has done for the last 30 years. Whatever the central banks do now, asset prices will depreciate against precious metals - gold, silver and platinum.
What is your reading of the developments across Europe and the economic data from China?
Today, Britain is completely irrelevant for the world economy. It contributes less than 4% of the global GDP and is a very small manufacturer. What is relevant for the world are growth rates in China and India. A number of analysts fail to understand that if India gets its act together, then it could have a growth rate of maybe 5% per annum.
But we already are around the 5% mark.
But we need that consistently. A consistent growth rate of 5% is an incredibly high rate. We don't have any growth in Europe and Japan. If we were to measure the GDP correctly in the US, there would be no growth. And we are talking about a demographically attractive population. What India needs is liberalisation of businesses and the reduction in government intervention. That apart, a number of things have to come into place. But, there is hope.
What are the factors working in favour of India as an investment destination?
Everyone is watching the reform process of the Modi-led government carefully, and whether he is able to reduce the incredible bureaucracy that India has. This, I think, is an important factor. That apart, investors will also look at industrial production and corporate profits. If corporate profits rise and industrial production picks up, especially the capital spending that has been disappointing thus far, investors will favour India.
Are there any sectors that you find investment worthy in the Indian context?
Overtime, the Indian consumer will become increasingly important. But then, the valuation of consumer stocks in India is quite rich. If I were an Indian, I would buy property / real estate in resource areas like breaches etc. The one thing that will happen in India I that the domestic story will increase rapidly. As more and more people take vacations, tourism and tourist related investments, particularly in real estate will do very well.
How are the market valuations looking at this stage?
Worldwide, most asset prices are grossly inflated. In India, the bond market is less inflated as compared to other countries where there are negative interest rates. An asset class that became inexpensive at the end of last year was precious metals - gold, silver and platinum. While they have rallied nearly 100% since then, I think they are still reasonably attractive. If I compare their prices to stocks and real estate, I think the precious metals is where I still find value. They are exceptions to the rule that asset prices are grossly inflated. But if we were to talk about asset price inflation in general, everything will go down in value - be it bonds, equities and collectables. But precious metals will fall less than equities.
What's your advice to someone who wants to invest with a year's perspective? Is it a good time to invest or can they get stocks cheaper six months from now?
It doesn't matter whether you invest now or later, I think the return expectations are low. One will not make a lot of money by buying stocks and bonds. We also don't know how the world will look like in five years from how - how crazy and insane the central bankers will become. Central bankers can buy all the government and corporate bonds. As in the case of Japan, they can also become a major shareholders in companies. So in essence, they can buy all the stock market. Through money printing, the world can move into State-ownership, socialism and communism.
So for the Indian stock market investor, is there money to be made in the next one year?
The last few years, active fund managers, by and large, have been playing a lottery. Some have done well, and some haven't. In general, active fund management has suffered badly at the expense of indexing. I believe, we are moving into a period where small investors have a huge opportunity to make money, as they have a window to capitalise and take advantage of market inefficiency. Index funds mostly buy large companies. As a result, it leads to undervaluation of smaller companies, and that's where I see an opportunity for the individual investors.
How are foreign investors viewing Urjit Patel's elevation to the RBI governor's post? Do you think the Monetary Policy will be guided more by political compulsions rather than pure economics going ahead?
I was an admirer of former Reserve Bank of India (RBI) governor, Raghuram Rajan. He understands the problems of money printing. He was one of the very few central bankers to criticise the US Fed policies though most of the other central bankers did not. That he left, is a negative for India. Although I understand that Urjit Patel is a reasonably hawkish central banker as well.
In emerging economies, politics plays a significant role, because on the margin the markets are driven by foreign buyers. So if you get more foreign money in, the markets are likely to go up. And foreign investors do pay attention to political developments. In case of India, they will watch the reform process of the Narendra Modi-led government very closely.
By when do you see the US Fed hiking rates?
I don't think the US Fed will increase rates in September, and not before the Presidential election. The US Fed has grossly overestimated growth rates of the economy, and it appears that it the economic growth has slows down considerably. I think by December 2016, the economic statistics will be even worse. So no rate increases will happen then either.
Are the global financial markets prepared for Donald Trump's victory in the upcoming US Presidential election?
I think in general investors will prefer Hillary Clinton. I disagree, and think she will be a disaster. But, that is the way investors think. So if she is elected, it may be better for the stock market in the near-term as compared to Donald Trump's victory. In the long-run, however, the outcome will not make much difference.
How do you see emerging markets perform in this backdrop?
Emerging economies have a better potential to grow in the long-run than the developed markets. Among specific countries, Vietnam, Laos, Cambodia, Thailand, northern Malaysia, Myanmar, India, Bangladesh, China, Nepal have a very low GDP to per capita. I have no doubt that in the next 10 - 20 years, the GDP per capita in Vietnam could be higher than, say, Thailand. So the growth is there in these regions.
But are investors going to make money?
This depends on the sectors they invest in. And most importantly, it depends on the price they pay for assets. Some of the consumer goods companies in India are trading at 40 - 50x earnings. These companies are unlikely to make investors rich. They may return 5 - 10% per annum, but their valuation is such that it will take a lot of time for investors to really make a lot of money. So one needs to evaluate which stocks are expensive and which ones are inexpensive.
Overall, there was very negative sentiment about emerging economies until the end of last year. Between 2011 and 2015, emerging economies grossly underperformed the US. If one was to put a gun on my head and tell me to put all my money either in India or in the US, I would choose India. Over the next 10 years, one would make more money in India.
