QE3 on cards; bet on gold, silver: Finaport

He doesn’t expect further rally in the equity markets. “I think the rallies, which we have seen for quite sometime now, were in anticipation of quantitative easing. A lot of all this has been discounted. We would not hold our breath as to the length and duration of this rally,” he adds.

He says he would concentrate on gold and silver.

Also read: Gold futures touch new high of Rs 32,400 on global cues

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar.

Q: After the big rally that we have seen last week, do you expect more upside in the European markets?

A: I think the rallies, which we have seen for quite sometime now, were in anticipation of quantitative easing. On that score, the ECB has delivered. Now, everyone is waiting for the Fed to follow-through. We think that quantitative easing by the Fed is on the cards, maybe even this week, after these awful unemployment numbers or nonfarm payroll numbers. So, there could be a little bit further to go. But a lot of all this has been discounted. We would not hold our breath as to the length and duration of this rally.

Q: Have you thought through what we all mean by a QE3? There are some guesses in the market about an open-ended QE plan with no targets mentioned and perhaps bond purchase targets being mentioned every month as we go along. Any options as to what Bernanke might announce at all?

A: There are many options. The most optimistic one from the market’s perspective would be if the word ‘unlimited’ was somehow included, if it was not quantified. The last Fed minutes pointed in that direction that it would actually be the case, just a bit like the ECB has done. So, the markets are becoming a bit greedy, let me put it this way.

Q: In that case, do you think that by the end of this week we could actually see a retraction of this rally or do you think we are very close to the highs for 2012, especially in the risk asset class?

A: With every round of QE, we had a rally. But the rallies keep getting shorter and shorter as a law of diminishing return. The reason for that is because the absolute level of debt is increasing and we get to the outreaches of debt. At some point, that becomes unsustainable. So, the dosages have to be higher and higher. That’s my worry that we actually get QE, but then the market reactions could be rather muted.

If I go into risky assets today, I would concentrate on gold and silver simply because what we are talking about here is currency debasement in big style. Best insurance policy against currency debasement is an investment in the only currency you cannot print, which is gold.