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.

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Hitesh Parikh.

www.hiteshmparikh.com