The latest Grantham quarterly is a real gem. It sounds to me like he has been reading too much TPC (more likely, I have been reading too much Grantham!). He calls out just about everyone involved in the economy in the letter. He claims Bernanke is clueless and is repeating the mistakes of Greenspan. He calls Geithner and Summers the captains of the USS Disaster. He says the homebuilders are reckless and that the mortgage borrowers and consumers are idiotic. He hammers the big banks and CEO pay. In essence, he argues that very little has changed in the last 18 months and that the market is now well overbought and at risk of a substantial downturn that is based on the weak real economy and realization that stimulus can’t get us out of this mess. The main takeaways:
- The market is 25% overvalued
- He hopes for “some modest hopes for a collective sensible resistance to the current Fed plot to have us all borrow and speculate again.”
- “The U.S. market will drop below fair value, which is a 22% decline (from the S&P 500 level of 1098 on October 19).”
- “All in all we are likely to have learned little, or rather to act, through lack of character, as if we have learned nothing. In doing so we are probably condemning ourselves to another serious financial crisis in the not too-distant future.”
I hope investors will take particular note of point two above. This Federal Reserve is destroying the dollars in our pockets as they implement the exact same boom/bust policies that helped create this mess in the first place. We absolutely must do something to help change the system and limit the power of these reckless and destructive bankers. Grantham has some suggestions in his letter, but it’s the investors who need to take power back from the Fed and the bankers.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.