Monday, April 27, 2015

Putting Money in the Banking System is not very safe and you will get Zero Interest Rate

 ET Now: What happens to the equity markets? Do they still stand out on a relative basis as opposed to other emerging markets or do you think they can pick up strength on their own in another quarter or two?

Marc Faber : First of all I would like to say that the Indian markets started to perform well long before Mr Modi was elected. At the end of 2013 the markets already started to rise considerably and this increase in prices has continued. Last year the market was up.

There is difference between various asset classes. In the US we have essentially high valuations by any measurement. In Europe, we have lower valuations and in emerging economies we have the lowest valuations. So from a longer-term perspective, I would rather invest money in emerging economies.

In the case of India, we have a similar situation like in some other markets. There are some blue chip stocks like Nestle. They sell at close to 50 times earnings. On the other hand, you have other sectors, other companies that are selling at maybe only 10 to 15 times earnings and the difference between India and the European markets or the US markets is that India has one of the best central bankers in the world having Mr Rajan. He has kept interest rates relatively high and has the flexibility to bring them down if he wants to.

I do not necessarily advocate low interest rates. I think the zero interest rate policies that Japan, Europe and the US have adopted will lead sooner or later to disaster, but it has led to rising stock prices. In Europe if you are an institution or a wealthy individual, your choice is to put money in the banking system. It is not very safe either and you will get zero interest rate. You can buy government bonds.

The money printing has distorted the price mechanism. Explain to me why Italian government bonds, Spanish government bonds, French government bonds should have a lower yield than the US treasuries. This is what money printing has done. It has created bubbles in different asset classes.

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

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