RBI has made SUBTLE change in its POLICY Communication. Very Few GUYS are talking about it.
Monday, October 10, 16
RBI has made SUBTLE change in its POLICY Communication. Very Few GUYS are talking about it. (If you are
planning investments – you must understand the game).
Greetings from Hitesh! Our post How
ADVISABLE is MUTUAL FUND investments? has won hearts of the readers for its
simplicity and to the point presentations. Some
Financial Advisors have admitted that they were not aware that just 2% fees
could reduce close to 2/3 of the client’s investments returns. If
the FUND is not doing up to the MARK – then these 2% will start reducing the
capital of the client. I appreciate
their HONESTY.
I am worried about the RBI’s
SUBTLE change and its effect on NORMAL guys. Just read. I have tried to make it
as simple as possible so that NORMAL guy can read and understand it without
much knowledge of economics and financial jargons. Many of you may find it
LITTLE dry, but do read it. It is going to impact your FUTURE.
First let us see what RBI said:-
The Reserve Bank of India in a press conference said it
believes the neutral real rate for India has dipped to 1.25% from 1.50% to 2%
that it maintained until recently.
Let us understand what is NETURAL REAL RATE.
But first understand REAL RATE. Say your Fixed Deposit is
earning 7.5% interest per annum. If Inflation rate is 6% - your REAL RATE is
1.5% (7.5%-6%).
NETURAL REAL RATE is a RATE at which ECONOMY is GROWING
perfectly (read GDP is growing) at expected RATE and inflation is STABLE.
Now what RBI is saying above means that NEUTRAL RATE is
BELOW THE REAL RATE!! RBI says NEUTRAL REAL RATE has dipped to 1.25% and REAL
RATE is 1.5% as we have seen above.
In simple TERMS
this means that you are borrowing at 1.5% and you are earning 1.25% from your
business!! How long can you afford to do that?
Ideal business situations demands, you should earn more
than what you pay. So, your NETRUAL REAL RATE should be higher than your REAL
RATE. WHAT RBI is HINTING is to reduce the REAL RATE rather than increase the
NEUTRAL REAL RATE. RBI wants REAL RATE To come down to say 1% and NEUTRAL REAL
RATE to be at 1.25%!!
Say your income is Rs.10000 and your expenditure is Rs.15000.
Now, rather than working to increase the income (NEUTRAL REAL RATE) – you are
trying to REDUCE your expenditure (REAL RATE)!! You have FIXED EMIs for LOANs
you have taken – how will you reduce your expenses?
WORLD OVER CENTRAL
BANKS ARE PLAYING THIS DANGEORUS GAME:-
US FED did not eliminate DEBT bubble in 2008. Instead it
supported it with more and more Liquidity through QE 1 / 2 and 3.
To reduce the over all INTEREST COST – they reduce the
interest rates (REAL RATES). JAPAN made it NEGATIVE!! USA is not increasing the
rates. India and CHINA are reducing the rates.
In reality though the rates have come down – the interest
liability have gone up. Say you had a loan of Rs.10 lakh at 10%. Now you have
increased the loan amount to Rs.1 Cr and you are paying 2% interest. Your
interest liability is now Rs.2 lakh per annum, which is 100%, more than Rs.1
lakh per annum you had it previously.
You increased the loan that SOME DAY your BUSINESS will
start generating more and more money and you will pay all the money back. Alas,
your business did not move up, you created 10 times the loans and your interest
liability has gone up by 100%!! Since you are not able to pay the interest
amount – it is compounding!!
This is the
simplistic explanation of what is happening with USA / JAPAN / EUROPEAN UNION
and UK.
What THEY WANT
you to do?
All they want that you do not SAVE. You SPEND. You go on
spending SPREE and ECONOMY start booming again and NEUTRAL REAL RATE GOES UP. To
stop you from SAVING, they are reducing the rate of saving down to ZERO. Do not
allow commodities prices to move up (just see the fight to maintain the crude
production and rate).
Japan failed in last 25 years by QE programmes and it is
still in DEFLATION. USA is also in SOUP. They are not able to FIND the solution.
Either they have not understood the problem or they are not ready to solve the
problem. I think the later part is TRUE.
Should you LOCK
your money for LONG TERM FIXED Deposits or some schemes like that?
Most normal guys are looking out for avenues to generate
sure short interest on their capital by giving LOANS or locking it to some
scheme, which can give them guaranteed return. After RBI policy – some guys are
marketing 7.5% interest rate scheme.
This is a SURE SHOT way to FINANCIAL SUICIDE for investors.
This happens because they do not look at the LARGER picture.
What is LARGER
PICUTRE?
Say there are
three classes:-
INTEREST EARNERS:-
You have kept your money on FD / LOAN. Debt is
fundamentally a liability even though it is treated as an asset by those who
“own” it. Your FD is an ASSET for you but your FD is a liability for BANK!!
As a result, “holders of debt believe that they
are holding an asset that they can sell for money to use to buy things, so they
believe that they will have that spending power without having to work.
Say you have kept Rs.1 Cr and you are earning
Rs.7.5 lakh interest and you are assuming that you don’t have to do anything !!
RETIRE
GUYS:-
Similarly, retirees expect that they will get the
retirement and health care benefits that they were promised without working. So, all of these people expect to get a huge
amount of spending power without producing anything.
WORKING
GUYS:-
At the same time, workers expect to get spending
power that is equal in value to what they are giving. They all can’t be
satisfied.
WHO WILL PRODUCE for the FIRST TWO CLASSES? These make the
system unsustainable. We see NPA Issues with the BANKS are growing up day by
day. We will have more and more MALAYA kind of story coming up.
If you see LARGER PICUTURE – financing squeeze is
intensifying emerging from a combination of slow income growth, low investment
returns and acceleration in liabilities coming due to both because of the
relatively high levels of debt and because of large pension and health care
liabilities.
The pension and health care liabilities that are
coming due are much larger than the debt liabilities in most countries because
of demographics.
What
will happen in NEAR FUTURE?
I see INFLATION SHOOTING UP like anything due to
lot of QE programmes worldwide. Inflation will become unmanageable due to
SUPPLY side issues. ( Business is not growing up after investing lot of
loan money – so businessmen will throw the towel some day and supply will
reduce. Demand will keep on moving up so the inflation!! BANK’s NPA will mount.
Who will refund your FD money? Govt will print new money and another round of QE will start).
My PREDICTION for WORLD WAR 3 like situation had
this economic understanding in the bottom way back in March 2014 along with
ASTROLOGICAL STUDY. I am seeing this scenario coming near day by day.
This is UNIQUE QUALITY of HITESH PARIKH. We see the FUTURE
as succinctly as possible before investing a single rupee. We are sharing these
information 100% free of cost to those who is willing to READ. Just LEARN from
it.
What are my
suggestions?
1. Please do not LOCK your MONEY in LONG TERM DEBT – however
lucrative it may look to you NOW. In the coming time of hyperinflation – you
will curse your luck for not listening to me.
2. Still there is a TIME for JUDGEMENT DAY. LEARN the FINE
ART of investing as fast as you can – so that wasted interests do not take you
for a RIDE. There are LOT MANY AVENUES and OPPORTUNITIES to make tons of money
in this situation and in coming times.
3. Challenging time brings opportunities for the PREPARED
GUYS and RUINS for UNPREAPRED GUYS. I can’t stop the coming time – but I can
prepare you for the time!!
If you want to be READY for the OPPORTUNITIES – JUST JOIN
US TODAY and master the fine art of investments.
We are passing through the
auspicious period of NAVRATRI to DIWALI. Join us and let us worship and
propitiate the GODESS LAXMI together. Do contact me.
Follow me on Twitter @hiteshmparikh /
WhatsApp - +91-9869425399 / www.hiteshmparikh.com
Live With
Passion…Invest With Passion.
Hitesh Parikh.
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