Why stock market is rising?

Stock market has constantly increased during the last few years. Why?
It is because governments all over the world are creating currency out of thin air. This currency is getting invested in stock market. A rising stock market creates the impression that government is taking the right economic decisions. When stock market collapses, governments usually lose elections. So most governments want stocks to rise when they are in power.

When will stocks stop rising?
When the interest rates are above real inflation rate, then it means that governments have stopped creating currency out of thin air. Then, the stock market will fall.

I have nearly doubled my stock market investments in last 5 years i.e. more than 100% profit in last 5 years. As of now, interest rates are below real inflation rate; so I am still invested in stock market.
When interest rates rise above real inflation rate; when USA 10 year bond yield rises above 4%; then I will start selling my stocks.

Why Indians invest in Gold/Silver?

The chart below shows the returns from gold and silver in Indian rupees during last few years.

Interest rates in India currently are about 7%. While the average returns from gold/silver is above 12%. This is why many Indian prefer to invest in precious metals instead of bank deposits.

During the last 17 years (1-Jan-2001 to 31-Dec-2017), average Indian stock market returns are 17.9% (based on Nifty index); but while investing in stock market taxes and commissions are deducted. So the actual return, in hand, to the investor is much lesser. Since most buy/sell of gold/silver happens in cash, usually no taxes are paid. Hence Indians prefer gold/silver investment as compared to stock markets.

Bail in / Depression coming.

World news keeps talking about the poor finances of PIIGS (Portugal, Italy, Ireland, Greece and Spain) nations. The chart below shows the NPA of Indian banks.

India's financial situation is as bad as PIIGS, but the news media creates the impression that India's economy is doing great.
How will this problem end? There are only 2 solutions

1. Hyperinflation.
2. Depression and bail-in.

In Hyperinflation, the government creates lot of currency. This wipes out the debt. But it also causes all savings to be lost. Currency notes become almost worthless. Indian politicians will likely not choose this option voluntarily because the chances of revolt are high. The government will likely fall, if inflation rises.

So India during the next few years will have a depression. The government will likely

• Make high denomination notes invalid.
• But limits of bank cash withdrawals.
• Seize some percentage of currency in bank accounts.

By looting from people, the banks will be saved. Prices of stocks and real-estate will fall by a huge percentage.

To prepare for this bail-in, the government is passing FRDI bill. Prepare accordingly.

Why BJP should suffer in Gujarat?

In 2012 Gujarat state elections, BJP had got 115 seats. In current elections, the results will be declared on 18-Dec-2017. I hope that BJP receives much fewer seats than 115 because BJP has made some big mistakes e.g.

• Demonetization hurt many people.
• GST is causing problems for small businesses.
• Religious fanaticism has increased under BJP rule.

If BJP is not punished, it will get more bold in continuing its existing path.

FRDI bill puts depositors at risk

Indian government is about to pass FRDI (Financial Resolution and Deposit Insurance) bill. Once this bill is passed, then if a bank incurs losses, the losses will be passed to the depositors.

Let us take an example: Let us say Bank-A has lot of NPAs (non-performing assets). Now, instead of share-holders (usually government for most banks) bearing the losses, as per the new FRDI bill, the depositors will have to bear the losses i.e. all deposits in the bank will be used to compensate for the NPAs. So if I have money in my savings a/c and fixed deposits in Bank-A, and Bank-A makes huge losses; then I will lose my money, even-though it was no fault of mine that the bank lost the money.

How to protect our savings from this bail-in? Keep minimum amounts in banks.

Indian ranking for ease of Business

India's ranking in terms of "Ease of doing business" index has gone up from 130 to 100. The Indian government claims success of Demonetization and GST. But, in fact, both these polices were never taken into account while computing this index.

India's rating has improved because Indian government

• Simplified the process of starting new business, terminating existing insolvent business and getting loans.
• Simplified the process of getting construction permits, enforcing existing contracts and simplifying corporate income tax.
• Taken steps to protect smaller shareholders.
• Digitization of Employee Provident Fund.

Demonetization has failed. The rich don't keep their black money in cash. They keep their black money in real estate, Gold and Dollars. So Demonetization has had almost zero impact on black money.

GST overall has good intentions, but it has multiple problems e.g.

• Small business people find the paperwork extensive. They will have to shut down or do business in cash only. The limit for tax exemption should be raised from 20 lakhs per annum within state to 5 crores within and inter-state per annum.
• GST rates are too high. In India, GST is on-average 18%. So a person pays about 30% income tax when he earns money and he will pay 18% tax when he spends his income. This means taxation is about 48% in India. In Singapore, GST is about 7% and income tax is less than 20% for most people. So most people pay less than 27% of their income to government.
• GST procedure is too complex. Most countries have a flat GST. India has different rates for different products e.g. what should be GST on chocolate ice-cream? The GST on Chocolate is different from GST on milk. So is chocolate ice-cream a chocolate product or a milk product?
• Asking business to file GST returns every month is too cumbersome. In Singapore, businesses file GST returns every quarter. Why should Indians file GST returns every month?

Indian ranking will not improve because of Demonetization or GST in current form.

India heading for huge inflation

Indian government will create currency, about ₹9 lakh crore, out of thin air. This is about US$ 139 billion. It will be used to make the banks solvent and build roads.
India's M3 money supply is about ₹8.3 lakh crore. So Indian government is more than doubling the money supply. So during the next couple of years we will see a huge inflation. Specifically:

• Real estate will go up
• Stocks will go up
• Gold and silver will go up
• Anyone with wealth in bonds, fixed deposits, PPF, etc will effective lose wealth.