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ralphmalph

Do Not Fight The Fed

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This is a theme that was articulated by Jeremy Grantham in his latest quarterly letter.

I’ve mentioned Grantham before as an investor I very much respect due to his consistent ability to grasp the ‘big picture’ and position his fund accordingly. A paragraph from Wikipedia perhaps best describes his general investment philosophy, although I think it’s a little more nuanced than this suggests:

“Grantham's investment philosophy can be summarized by his commonly used phrase "reversion to the mean." Essentially he believes that all asset classes and markets will revert to mean historical levels from highs and lows. His firm seeks to understand historical changes in markets and predict results for seven years into the future. When there is deviation from historical means (averages) the firm may take an investment position based on a return to the mean. The firm allocates assets based on internal predictions of market direction.”

I don’t know whether Grantham’s latest thoughts have already been discussed on a previous thread, but if you haven’t read them then it’s worth a few minutes of your time. There’s nothing that will be particularly novel to members here because the arguments he gives simply echo what most of us here believe, but I think he sums up the situation well. GMO (Grantham Mayo Van Otterloo) has now blocked the original link to the piece, but someone has posted it on scribd:

Night Of The Living Fed

Night-of-the-Living-Fed.jpg

I don’t agree with all of his arguments, but there’s plenty of discussion about housing markets, including Australia and the UK. In relation to ralphmalph’s OP, here’s a snippet of what he has to say about the Fed juicing equity markets:

Greenspan and Bernanke Learn How to Stimulate Stock Markets

Here the plot thickens, for I suspect that Greenspan and Bernanke know this: that their only decent tool to help the economy is to move the market. They know, as we have also deduced, that the market is far more sensitive to monetary factors than is the real economy. “Monetary policy works for the most part by influencing the prices and yields of financial assets, which in turn affect economic decisions and thus the evolution of the economy” (Bernanke, May 2004, American Economic Review). If you believe this, then goosing the market deliberately is a useful short-term tool for getting traction in difficult economic times, such as those following a severe financial crash or even a normal cyclical contraction.

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IMO its all about one thing: the housing market and the trillions that have been created and invested in that bubble.

We are in the same boat but don't see the fall out yet as the Koalishon are keeping the Elephant hidden.

Edited by Realistbear

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Its simple. All yo have to realise is that Bernanke BELEIVES that the reason and cause of the great depression, which he wrote a Book on, and is cited as being an expert on, was the failure of banks, the insolvency of banks, and therefore, CREDIT was not available.

he believes he can remove BUST and maintain BOOM by allowing insolvent banks to continue.

As he says, the fly in his ointment is the commodity.. the thing everyone has to use to survive...these too are allowed to rise in price as rescuing insolvent entitities devalues the currency.

this is a price well worth paying to save the nation from deflation.

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  • 146 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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