No. Most of you will not like to read this. Not at all. Most people consider me to be like a perma bull, so I cannot say that the E markets are inflated or D markets are terribly priced. Too much money is chasing too little of assets.

Remember JP Morgan tried to KEEP buying in 1907 (it worked) and then in 1929(it did not). However, JPM was a single man with limited resources. Now imagine if ALL the Central banks bought all the assets in all the falling markets, then life is not so difficult. It is scary about what an irressponsible Central Banker with unlimited printing power can do!

There is just too much money sloshing around. Right from the ’70s when they gave up the Gold Standard, there has been too much of note printing.

What happens when more notes get printed?

  • it creates inflation because
  • commodities prices go up and
  • asset prices go up

Over the last few years commodities have stagnated. See petrol, coal, metals..nothing has really torn off to new heights. Thus the extra cash did not go into commodities.

All the cash has gone into the assets. Pick any share (for e.g. Mahindra Holiday Resorts Ltd) and see how the SAME fund houses have bought more and more of the said shares – see the shareholding pattern – publicly available. Now if Rs. 5000 crores were to chase saay 100 companies, it is fairly obvious that indices can ONLY go up!

Take the American market and go and have a look at the buy backs. Almost all American share buy backs have come from borrowing – not from earning gains. All the so called boom has been funded by companies buying their own shares. Go online and you will find the articles on buy back by companies like “Restoration Hardware”. Nothing wrong, but it will hurt.

About 20 years ago Central Banks started a mad race to print notes and “postpone the problem”. Call it “kicking the can down the road” for all problems. We have been doing that. We have no clue of how this predator will behave if we stop feeding it new money. So theoretically the Central banks can ‘support’ the bond (and when a buy back occurs with borrowed money, the share market too) for an extremely long period of time, across many markets, and with large amounts of money.

This is a stupid and dangerous use of money. If one section of the society gets money FREE, they will run a huge commodity inflation or asset inflation. Right now it is asset inflation across the world. Sadly, sane voices are drowned in this cacophony of “Rs. 5000 crores per month sip” or “you have no choice, just do your sip”……etc. This is perhaps the only thing to do for preparing for a big, big hyperinflation in the world?

What scares me? Record debt in the books of US companies, job less growth, a huge number of retrenchments, a burst in passive investing – managers who have no clue what to buy, and justify that can keep shoving money in the index, record valuations, rising pe, slow growth, note printing by ALL central banks (RBI is far saner), record low volatility.

If you are an IFA you need to decide are you here to create wealth for your customer of promise to find him the next best hot idea?

Many financial advisors THINK that they are in the business of making money for the customer. If it is true, remember it also calls for preserving, and growing wealth over GENERATIONS, not weather cycles!  The two mindsets couldn’t be more different. If you remain loyal to the same clients for decades and generations, and you care for their financial well-being the same way we do for our own, you need to look at debt too. A strong, disciplined, calm and a thoughtful contrarian approach can help you in such situations. Yes it might mean that you sit in cash for longer periods of time, but in the long run it might help. You will not always beat all asset classes or indexes, but if your top priority is preserving capital, you have a great time to put that skill to test. One big fund house is now saying “we are seeing more value in large cap, not in mid cap”. Sure. I am not saying be complacent, however: keep question what is being touted as wisdom, including this very blog!!

 

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  1. Subra sir:

    Eye opener! Brilliant!
    But really what choice do we have but to do our sip. I think the indian market has just begun its uptrend and market madness is yet to set in.
    But surely one doesnt know when it all comes crashing down.

    please do advice, seriously, it would be very helpful.

    What would be a sensible thing to do with the accumulated corpus and on going sip in this market going forward? say from a 5-7 year perspective… Elections 2019… sensex 50k.. how to rationalize all this and take the right decisons?

    Thanks

  2. People are playing jenga with money, removing it from the base and placing it at the top to give the illusion of a tall tower. Foreign investors are flooding non us markets.SIP is the 11th commandment. The advice to others ‘be patient and get ready for the breakfast (stock) buffet that will come’.

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