At a webinar hosted by Rosenberg Research and distributed on March 16, investment strategist Jeremy Grantham discussed his forecast for the economy of the United States with economist David Rosenberg. Grantham is one of the firms co-founders and serves as the company’s chief investment strategist. GMO is an asset management company. He has more than 40 years of experience as an investment strategist and has held positions on the investment boards of a number of different charitable organizations.
Grantham expressed his disapproval of the Federal Reserve’s role in the persistent creation of asset bubbles. He made the observation that the recent failures of major banks did not come as a surprise to him. He drew a parallel between the current state of the economy and that of the year 2000, pointing out that in 2000 “the economy experienced a soft recession” because there were no problems with real estate or debt markdowns at the time.
“It’s already difficult enough to participate in the equity market in the year 2000. This time, we have done a dead ringer for the equities market, and for gravy, we’ve done the housing market and the bond market,” the expert observed, continuing as follows: “This time, we have done a dead ringer for the equity market.”
The fact that this bubble contains everything is the source of its problem. We have caused the vital and volatile housing market to bubble, which has resulted in record prices. We pushed interest rates to an all-time low, which resulted in a bond market bubble that reached heights that had never been witnessed in the history of man.
In the grand scheme of things, all we have is a small handful of these giant bubbles. After each and every one of them comes a period of economic contraction. If anything goes terribly wrong, like it did in 1929, the next step is the Great Depression. Grantham elaborated, “If you fool around with the financial system, you get the dreadful catastrophes of the Great Financial Collapse.”
The investment guru stated, “I don’t think it is likely that the bear market will conclude until well into next year,” adding that “the fundamentals could drag out for quite a time.” He came to the following conclusion after making the observation that “after April, we will undoubtedly begin to see pressure on profit margins, GDP growth, and the labor market”:
I really hope that the fact that the Federal Reserve has never been able to do anything right since Paul Volcker is common knowledge by this point. They have merely produced a setting that is conducive to the formation of a succession of interconnected super bubbles, the bursting of which results in exorbitantly consequential and terrible outcomes.