Lower interest rates not necessarily linked to consumer spending

It is the view among most central bankers that you cut the interest rate and the economy will respond positively. But that is far from certain.

First of all, interest rates provide savers income. So, if you have zero interest rate the savers, the insurance industry, pension funds are being hurt. That should be very clear.

Number two, if I came to you and say: Look, interest rates are going to go below zero and on your deposits you don’t get money any more, the reaction of you would be to spend more. But, it could also be that you would save more because say on a million dollar before you got an interest of 10 per cent and now that you get nothing and that lowering of interest rate has actually led in the case of Denmark, Sweden, Switzerland and Finland to actually higher savings rate.

In other words, people feel insecure. The household scratches its head and says what is happening? I am not getting any money in my retirement and so I have to save more. So, the view that lower interest rates stimulate growth is very questionable.

Governments are a cancer

I think that investors by and large have to shift their strategy and they need to focus on the question: how do I lose the least money? Number two, I think the governments have to focus on the question -- have we intervened too much? Are we becoming socialistic or a centrally planned economy? I can tell you, I have been visiting centrally planned economies from Czechoslovakia in 1968 to Russia in 1980, China in 1978, Vietnam in 1989. 

The centrally planned economy is a complete disaster and we have to go back to the individual, taking personal responsibility and when something goes wrong, people should not say the government should do this, the government should do that. You must remember, the government cannot help you. The government is a cancer and it can only temporary boost economic activity by throwing money at the system or by launching a huge spending packages but in the long term ,government's expansion efforts have a negative impact on the free market.

The relationship between big government, big business and big media

The Davos World Economic Forum crowd are symptomatic of the unholy dynamics between big government, big business, and big media. As someone said, “They all benefit by the billions of dollars from this partnership, and it’s in all of their interests to protect one another. It’s one for all and all for one. It’s a heck of a filthy relationship that makes everyone filthy rich — everyone except the American people.”

Naturally, I agree with the above observations about the filthy relationship between big government, big business, and big media. I would add to this triumvirate “big academics,” Ivy League type of educational institutions, and central banks around the world. “In Davos the croupiers break bread with Authority.”

I blame the Fed, BOJ and ECB for whats happening now

The central banks remind me of the movie ‘One Flew Over the Cuckoo's Nest’ where the doctors are the insane, whereas the inmates are actually quite common people with common sense and normal. This is exactly what I think is happening today.

My sense is that many policies that were implemented- in particular zero interest rates and more recently negative interest rates- are rather negative for asset markets than positive. They create a lot of uncertainty in investors’ minds and we have statistics on all the countries that have introduced negative interest rates. In all these countries actually the savings rate went up.

These policies may be actually counterproductive. They are negative for bank earnings. I’m not blaming only the Fed. I’m blaming the Fed, the Bank of Japan and the ECB under Mr. Draghi. They talk to each other every day, they coordinate monetary policies and they come from the same Neo-Keynesian background.

Indian stock market could see more declines but are approaching buying levels

When the Sensex was around 30,000, I said that given the global slowdown, it was likely that it could drop to around 24,000. We are now below 24,000 and I think personally that Indian stocks are coming into buying range. Let us put it this way. They are now more reasonably priced than they were say nine months ago.

Personally, I think India may still go down to 20,000. I think that eventually the market will go higher in India but it will obviously depend on monetary policies. I prefer India to have a relatively tight monetary policies as they practice under Raghuram Rajan who I think is the best central banker in the world because if you keep money relatively tight, the currency is relative strong and this has happened in India. 

This is the best for India to have a relative strong currency. The stock market is not important for the average Indian because few percentage of the [Indian] population own shares.