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Grantham of GMO say the next Bust will be Nothing Like You Have Seen Before !

Jeremy Grantham of GMO say the next Bust will be Nothing Like You Have Seen Before ! ….but before that the Markets will make a New High of another 25% from current Levels

This he asserted in his latest Interview a few days ago in Fortune  ..A Few Weeks back in the New York Times he called the US Fed Chief Janet Yellen “Ignorant”

Some interesting quotes from his Fortune Interview :

  1. “…go back to the 1980s and the U.S. had an aggregate debt level of about 1.3 times GDP. Then we had a massive spike over the next two decades to about 3.3 times debt. And GDP over that time period has been slowed. There isn’t any room in that data for the belief that more debt creates growth.”
  2. “In the economic crisis after World War I, there was no attempt at intervention or bailouts, and the economy came roaring back. In the S&L crisis, we liquidated the bad banks and their bad real estate bets. Property prices fell, capitalist juices started to flow, and the economy came roaring back. This time around, we did not liquidate the guys who made the bad bets.”
  3.  “Higher interest rates would have increased the wealth of savers. Instead, they became collateral damage of Bernanke’s policies. The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle. There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression.”
  4. “…...the Fed can manipulate stock prices. That’s perhaps the only thing they can do.…… the Fed encourages steady increasing leverage and more asset bubbles….. The Fed gives them(investing professionals) very cheap leverage on the upside, and then bails them out on the downside…..The only ones who have really benefited from QE are hedge fund managers.”
  5. “We do think the market is going to go higher because the Fed hasn’t ended its game, and it won’t stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market’s mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.”
  6. “….. to invest our clients’ money on the basis of speculation being driven by the Fed’s misguided policies doesn’t seem like the best thing to do with our clients’ money…….We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That’s how we will pay for this. It’s going to be very painful for investors.



1 thought on “Grantham of GMO say the next Bust will be Nothing Like You Have Seen Before !”

  1. Pingback: US Overvalued?~Shiller vs Siegel~Roubini & Grantham bearish | Gaurav's Blog

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