stock bubbles

Donald Trump Inheriting A ‘Poisoned Chalice’?

I’ve had this suspicion for some time now that whoever won the 2016 U.S. presidential election is very likely inheriting a “poisoned chalice.”

When I launched Boom2Bust.com, “The Most Hated Blog On Wall Street,” on Memorial Day weekend 2007, I started warning readers of a coming U.S. financial collapse.

After moving on to Survival And Prosperity in 2010, I came to believe the economy/larger financial system had already entered a long, drawn-out descent before the eventual crash.

That downward trajectory would be punctuated by crises like what reared its ugly head in the autumn of 2008.

Financial types were quick to label the recession at the end of last decade as the “Great Recession.”

This “nattering nabob of negativity” thinks it’s only a matter of time before a “Greater Recession” strikes, fueled by Washington and the Fed “kicking the can down the road” and having too few bullets left when that “road” inevitably runs out.

President-elect Trump is also aware of the possibility of such economic upheaval.

Bob Woodward and Robert Costa reported on The Washington Post website back on April 2, 2016:

Donald Trump said in an interview that economic conditions are so perilous that the country is headed for a “very massive recession” and that “it’s a terrible time right now” to invest in the stock market, embracing a distinctly gloomy view of the economy that counters mainstream economic forecasts…

Trump has for months contended that the U.S. economy is in trouble because of what he sees as an overvalued stock market, but his view has grown more pessimistic of late and he is now bearish on investing, to the point of warning Americans against doing so.

“I think we’re sitting on an economic bubble. A financial bubble,” Trump said. He made clear that he was not specifying a sector of the economy but the economy at large and asserted that more bullish forecasts were based on skewed employment numbers and an inflated stock market.

“First of all, we’re not at 5 percent unemployment. We’re at a number that’s probably into the twenties if you look at the real number,” Trump said. “That was a number that was devised, statistically devised to make politicians- and, in particular, presidents — look good. And I wouldn’t be getting the kind of massive crowds that I’m getting if the number was a real number.”

(Editor’s note: Bold added for emphasis)

Yet Trump, as President-elect of the United States, chooses to accept the potential “poisoned chalice,” from which he might be forced to drink from during his tenure in the Oval Office as the current economic expansion grows long in the tooth.

Consider the following from Jeffrey Sparshott in The Wall Street Journal’s Real Time Economics blog this morning:

Donald Trump is poised to inherit one of the longest-lived economic expansions since the World War II era. Barring any sudden shock or sudden acceleration, the president-elect will also take office during the weakest

The economy has been growing for more than seven years, ranking the expansion the fourth-longest since 1949 (when quarterly data became available). If economic expansion continues through Mr. Trump’s first term, it will be the longest.

While gross domestic product, a broad measure of economic of output, is advancing, it’s been at the slowest rate on record for an expansion

(Editor’s note: Bold added for emphasis)

I’d like to think Donald Trump and the Republicans could turn this ship around and avert economic disaster.

I, for one, would only be too happy to be proven wrong about my prediction of a “Greater Recession” and eventual collapse.

But I fear the damage may already be done.

So much so that the incoming White House might want to level with the American people about what might be in store for them from an economic standpoint.

Otherwise, the public will have less of a fighting chance of weathering the financial storm should it hit.

Not to mention opponents of a Trump administration will try hard to pin the blame on them for a painful event previous administrations played a big part in creating.

One need only look at Illinois where Republican Governor Bruce Rauner (only 22 months in office) is facing the same baseless charges for decades of mismanagement perpetrated by those across the political aisle.

President-elect Trump has his work cut out for him as the economy is concerned. The billionaire businessman seems to be up for the challenge, and America will know soon enough if he can pull off yet another amazing feat.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Costa, Robert and Woodward, Bob. “In a revealing interview, Trump predicts a ‘massive recession’ but intends to eliminate the national debt in 8 years.” The Washington Post. 2 Apr. 2016. (https://www.washingtonpost.com/politics/in-turmoil-or-triumph-donald-trump-stands-alone/2016/04/02/8c0619b6-f8d6-11e5-a3ce-f06b5ba21f33_story.html?hpid=hp_hp-top-table-main_trumppresidency-7pm%3Ahomepage%2Fstory). 11 Nov. 2016.

Sparshott, Jeffrey. “The U.S. Economy President Donald Trump Will Inherit, in 11 Charts.” Real Time Economics. 11 Nov. 2016. (http://blogs.wsj.com/economics/2016/11/11/the-u-s-economy-president-donald-trump-will-inherit-in-11-charts/). 11 Nov. 2016.

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Friday, November 11th, 2016 Bubbles, Employment, Federal Reserve, Fiscal Policy, GDP, Government, Investing, Monetary Policy, Political Parties, Preparedness, Recession, Recovery, Stocks Comments Off on Donald Trump Inheriting A ‘Poisoned Chalice’?

Jeremy Grantham Made Commander Of The Order Of The British Empire

Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $99 billion in client assets), was recently made a Commander of the Most Excellent Order of the British Empire by Britain’s Queen Elizabeth II.

Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, was awarded the CBE for his philanthropic service.

Regular readers may recall that the last time I blogged about the “crash prophet” (May 12), he warned about U.S. stock prices (“the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500”) and housing prices (“in 12 to 24 months U.S. house prices – much more dangerous than inflated stock prices in my opinion – might beat the U.S. equity market in the race to cause the next financial crisis”).

Survival And Prosperity would like to congratulate Mr. Grantham on his CBE.

Christopher E. Hill
Editor

(Editor’s notes: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Monday, June 20th, 2016 Bubbles, Crash Prophets, Housing, Investing, Stocks Comments Off on Jeremy Grantham Made Commander Of The Order Of The British Empire

Jeremy Grantham: U.S. House Prices ‘Might Beat The U.S. Equity Market In The Race To Cause The Next Financial Crisis’

Last night I finally got the chance to read the latest quarterly investment letter from “crash prophet” Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $99 billion in client assets). Grantham divided up May’s installment (covering the first quarter of 2016) into two parts. Part I, “Always Cry Over Spilt Milk,” was a recap of a paper he wrote six months ago. Part II was entitled “Updates,” in which Grantham provided these investing nuggets:

The tone of the market commentators back in January, when I was writing my last quarterly letter, seemed much too pessimistic on global stock markets, particularly the U.S. market, and I said so.

This relative optimism was an unusual position for me and the snapback in these markets has validated, to a modest degree, my thinking at the time. I still believe the following: 1) that we did not then, and do not today, have the necessary conditions to say that today’s world has a bubble in any of the most important asset classes; 2) that we are unlikely, given the beliefs and practices of the U.S. Fed, to end this cycle without a bubble in the U.S. equity market or, perish the thought, in a repeat of the U.S. housing bubble; 3) the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500, about 10% above current levels, and would normally require a substantially more bullish tone on the part of both individual and institutional investors; 4) it continues to seem unlikely to me that this current equity cycle will top out before the election and perhaps it will last considerably longer; and 5) the U.S. housing market, although well below 2006 highs, is nonetheless approaching a one and one-half-sigma level based on its previous history. Given the intensity of the pain we felt so recently, we might expect that such a bubble would be psychologically impossible, but the data in Exhibit 1 speaks for itself. This is a classic echo bubble – i.e., driven partly by the feeling that the substantially higher prices in 2006 (with its three-sigma bubble) somehow justify today’s merely one and one-half-sigma prices. Prices have been rising rapidly recently and at this rate will reach one and three-quarters-sigma this summer. Thus, unlikely as it may sound, in 12 to 24 months U.S. house prices – much more dangerous than inflated stock prices in my opinion – might beat the U.S. equity market in the race to cause the next financial crisis

(Editor’s note: Bold added for emphasis)

Note that bit about “the threshold for a bubble level for the U.S. market is about 2300 on the S&P 500.” 2,300 remains the same threshold from the last time I blogged about Jeremy Grantham on Survival And Prosperity (it had been 2,250 prior to this). As I type this, the S&P 500 is at 2,064.

In addition to U.S. stock and housing prices, Grantham talked about crude oil. From the newsletter:

My belief remains that a multi-year clearing price for oil would be the cost of finding a material amount of new oil. This appears to be about $65 a barrel today, and costs are drifting steadily higher as the cheapest old oil is pumped. My guess is that the price of oil will indeed be as high as $100 a barrel again within five years

(Editor’s note: Bold added for emphasis)

Once again, another insightful installment from the British “crash prophet.”

You can read the entire piece on GMO’s website here (.pdf format)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Thursday, May 12th, 2016 Bubbles, Commodities, Crash Prophets, Energy, Federal Reserve, Housing, Investing, Monetary Policy, Natural Resources, Stocks Comments Off on Jeremy Grantham: U.S. House Prices ‘Might Beat The U.S. Equity Market In The Race To Cause The Next Financial Crisis’

GoldSilver.com’s Mike Maloney On Stocks: ‘This Is Probably Going To Be The Top Of The Market Just Before The Greatest Crash In History’

Speaking of stocks, one “crash prophet” who I haven’t checked in on for a while is Mike Maloney, a precious metals expert, advisor, and author who runs California-based GoldSilver.com (specializing in the instruction of precious metals investing and providing world-class gold/silver dealer services). Late Monday night I watched a video he published on March 29 about where he thought the U.S. stock market was at and where he predicted it was heading. Maloney told viewers:

I just wanted to ask the really big question- have the stock markets topped and has a crash already begun? And if it is a crash, how bad will it be? And here’s some of the evidence that I was looking at…


“Stock Market Crash: Is The Top In? Mike Maloney”
YouTube Video

Maloney eventually concluded:

We’ve created something called a classic dome top. And when you look back in history, this is probably going to be the top of the market just before the greatest crash in history. That’s where I believe that we are

(Editor’s note: Bold added for emphasis)

Not surprisingly, Maloney thinks precious metals will perform well in such a scenario.

Disturbing stuff. But Maloney (as usual) makes a strong case for his forecast.

However, I can’t help but wonder if QE 4 or its equivalent isn’t already warming up in the bullpen to keep asset prices aloft or even send them higher at least until the November election is done and another Democrat is in the White House.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on information found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented on the site.)

Maloney’s revised (9/15) precious metals investing book…

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Tuesday, April 12th, 2016 Crash Prophets, Investing, Political Parties, Precious Metals, Stimulus, Stocks Comments Off on GoldSilver.com’s Mike Maloney On Stocks: ‘This Is Probably Going To Be The Top Of The Market Just Before The Greatest Crash In History’

Jeremy Grantham: ‘U.S. Market Will Rally Once Again To Become A Fully-Fledged Bubble Before It Breaks’

Last week, I blogged about the latest quarterly investment letter from “crash prophet” Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently oversees $104 billion in client assets). While it was an interesting read, I noted that I was a little disappointed that Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, didn’t talk about two themes he’d brought up in recent newsletters. I wrote:

Two things I’m dying to know from Mr. Grantham right now:

1. Does he still expect “the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016”?

2. Does he/GMO “still believe that bubble territory for the S&P 500 is about 2250”? The S&P was really marching towards 2,250 for a while before the index went south.

Last night, I saw that Grantham penned a piece on the Barron’s website that answered those questions (for the most part). From the article:

Looking to 2016, we can agree that uncertainties are above average. But I think the global economy and the U.S. in particular will do better than the bears believe it will because they appear to underestimate the slow-burning but huge positive of much-reduced resource prices in the U.S. and the availability of capacity both in labor and machinery. So even though I believe our trend line growth capability is only 1.5%, our spare capacity and lower input prices make 2.5% quite attainable for this year. And growth at this level would make a major market break unlikely. As discussed elsewhere, this situation feels at worst like an ordinary bear market lasting a few months and not like a major collapse. That, I think, will come later after the final ingredients of a major bubble fall into place

(Editor’s note: Bold added for emphasis)

Concerning the U.S. stock market, Grantham wrote:

The U.S. equity market, although not in bubble territory, is very overpriced (+50% to 60%) and the outlook for fixed income is dismal… I still believe that, with the help of the Fed and its allies, the U.S. market will rally once again to become a fully-fledged bubble before it breaks. That is, after all, the logical outcome of a Fed policy that stimulates and overestimates some more until, finally, some strut in the complicated economic structure snaps. Good luck in 2016…

(Editor’s note: Bold added for emphasis)

In the section entitled “U.S. equity bubble update,” he added:

On the evaluation front, the market is not quite expensive enough to deserve the bubble title. We at GMO have defined a bubble as a 2-standard-deviation event (2-sigma). We believe that all great investment bubbles reached that level and market events that fell short of 2-sigma did not feel like the real thing. (In our view, 2008 was preceded by an unprecedented U.S. housing bubble – a 3-sigma event.)

Today a 2-sigma U.S. equity market would be at or around 2300 on the S&P, requiring a rally of over 20%; even from the previous record daily high it would have required an 8% rally…

On the more touchy-feely level of psychological and technical measures, the U.S. market came closer to bubble status but, still, I think, no cigar

(Editor’s note: Bold added for emphasis)

So to answer my two questions from last week:

1. Grantham believes U.S. stocks will rally once again to become a bubble (no mention of “a serious decline around the time of the US elections in late 2016” though).

2. He also believes bubble-territory for the S&P 500 is no longer 2,250, but a tad higher “at or around 2,300.”

As highlighted at the bottom of the “Crash Prophets” page, Jeremy Grantham has an impressive track record with his financial forecasts:

• In 1982, said the U.S. stock market was ripe for a “major rally.” That year was the beginning of the longest bull run ever.
• In 1989, called the top of the Japanese bubble economy
• In 1991, predicted the resurgence of U.S. large cap stocks
• In 2000, correctly called the rallies in U.S. small cap and value stocks
• In January 2000, warned of an impending crash in technology stocks, which took place two months later
• Saw the 2008 global financial crisis coming. In April 2007, said we are now seeing the first worldwide bubble in history covering all asset classes.

As such, it’s difficult to dismiss this latest one.

Check out Grantham’s piece on Barron’s website here if you have time. I only scratched the surface, and it’s an insightful read.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information contained herein.)

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Friday, February 5th, 2016 Bonds, Bubbles, Commodities, Crash Prophets, Federal Reserve, Housing, Investing, Monetary Policy, Stimulus, Stocks Comments Off on Jeremy Grantham: ‘U.S. Market Will Rally Once Again To Become A Fully-Fledged Bubble Before It Breaks’

Signs Of The Time, Part 87

It’s been interesting watching the run-up to the recent carnage on Wall Street.

For some time now, the “crash prophets” who correctly-called the housing market bubble and 2008 economic crisis have been warning the stock market was frothy, if not in bubble territory.

Meanwhile, the Pollyannas who didn’t see either of those events from the last decade convinced themselves that not only had the United States managed to get on solid footing again after the blatant “papering over” of the debacle that reared its ugly head seven years ago, but that U.S equities and their valuations were a fair reflection of an economic “recovery” that was charging “full-steam ahead.”

At the same time, the Pollyannas (with the assistance of the financial mainstream media) ridiculed the “prophets” at any chance they got.

Reminds me a lot of that time period from roughly 2004 to 2008, until the Pollyannas got spanked hard and many of their mouthpieces were put out to pasture.

Make no mistake about it, America’s financial crash is coming.

The powers-that-be can only “kick the can down the road” until the road runs out. And that time is almost here.

Is the recent stock market plunge the event that pushes us over the edge?

I’m not sure it is. That being said, the dive has resulted in some serious financial losses. Steve Goldstein, the D.C. Bureau Chief for the MarketWatch website, wrote this afternoon:

As of March 31, households and nonprofits held $24.1 trillion in stocks. That’s both directly, and through mutual funds, pension funds and the like. That also includes the holdings of U.S.-based hedge funds, though you’d have to think that most hedge funds are held by households.

Using the Dow Jones Total Stock Market index through midmorning trade, that number had dropped to $22.32 trillion.

In other words, a cool $1.8 trillion has been lost between now and the first quarter — and overwhelmingly, those losses occurred in the last few days…

(Editor’s note: Bold added for emphasis)

$1.8 trillion. Whew. After riding the bull for so long, it looks like the Pollyannas weren’t expecting the beast to pull an abrupt about-face… and gore them.


The White Stripes, Conquest (2007)
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Source:

Goldstein, Steve. “Households just saw $1.8 trillion in wealth vanish as stocks fall.” MarketWatch. 24 Aug. 2015. (http://www.marketwatch.com/story/households-still-hold-22-trillion-in-stocks-even-after-market-rout-2015-08-24). 24 Aug. 2015.

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Jeremy Grantham Identifies 10 ‘Potential Threats To Our Well-Being’

Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (oversees $117 billion in client assets as of June 30, 2015), just released his latest investment letter on the GMO website. Writing about the second quarter of 2015, Grantham, whose individual clients have included current Secretary of State John Kerry and former Vice President Dick Cheney, focused on ten “potential threats to our well-being” (echoing a Morningstar piece I blogged about on July 14). These threats are (in his own words):

1. Pressure on GDP growth in the U.S. and the balance of the developed world: count on 1.5% U.S. growth, not the old 3%
2. The age of plentiful, cheap resources is gone forever
3. Oil
4. Climate problems
5. Global food shortages
6. Income inequality
7. Trying to understand deficiencies in democracy and capitalism
8. Deficiencies in the Fed
9. Investment bubbles in a world that is, this time, interestingly different
10. Limitations of homo sapiens

Grantham talked about each threat in detail. I’ll be focusing on those items I think would interest Survival And Prosperity readers.

Regarding pressure on U.S./developed world GDP growth, Grantham wrote:

Factors potentially slowing long-term growth:
a) Slowing growth rate of the working population
b) Aging of the working population
c) Resource constraints, especially the lack of cheap $20/barrel oil
d) Rising income inequality
e) Disappointing and sub-average capital spending, notably in the U.S.
f) Loss of low-hanging fruit: Facebook is not the new steam engine
g) Steadily increasing climate difficulties
h) Partially dysfunctional government, particularly in economic matters that fail to maximize growth opportunities, especially in the E.U. and the U.S…

On “plentiful, cheap resources” being gone:

All in all I am still very confident, unfortunately, that the old regime of irregularly falling commodity prices is gone forever…

On oil:

Oil has been king and still is. For a while longer… Now, as we are running out of oil that is cheap to recover, the economic system is becoming stressed and growth is slowing…

Grantham added:

The good news is that with slower global growth and more emphasis on energy efficiency and a probability of some carbon tax increases, global oil demand may settle down to around 1% a year for the next 10 to 15 years. At that level of increase in demand, even modest continued increases in recovery rates will keep us in oil even if no new oil is found for the next 15 years.

Beyond 15 years, the resource and environmental news gets better because cheaper electric vehicles and changes in environmental policy will enable steady decreases in oil demand…

On global food shortages, Grantham referred to some recent research. He wrote:

I was completely gruntled by a report last month from the Global Sustainability Institute of Anglia Ruskin University in the U.K. This unit is backed by Lloyds of London, the U.K. Foreign Office, the Institute of Actuaries, and the Development Banks of both Africa and Asia – a grouping with a very serious interest in the topic of food scarcity and societal disruptions to say the least. The team of scientists used system dynamic modeling, which uses feedbacks and delays, to run the business-as-usual world forward 25 years. Without any new and improved responses from us, the results are dismaying: Prices of wheat, corn, soybeans, and rice were all predicted to be at least four times the levels of 2000. (They are currently about double.) The team concluded, “The results show that based on plausible climate trends and a total failure to change course, the global food supply system would face catastrophic losses and an unprecedented epidemic of food riots. In this scenario, global society essentially collapses as food production falls permanently short of consumption.” And you thought my argument on food problems of the last three years was way over the top!

Grantham is still not impressed with the Federal Reserve. He predicted:

And what of the current Fed regime – the Greenspan-Bernanke-Yellen Regime – that promotes higher asset prices and lower borrowing costs, which facilitate stock buybacks amongst other speculative forces? Well, this regime, too, will change. Regression of regime, if ou will. Painfully, politicians, the public, businessmen, and possibly even some economists will recognize the current regime as a failed experiment.

And on the “limitations of homo sapiens”? Grantham observed:

Not only does our species have a strong predisposition to be optimistic (or bullish) – it is probably a useful survival characteristic – but we are particularly good at listening to agreeable data and avoiding unpleasant data that does not jibe with our beliefs or philosophies. Facts, whether backed by 97% of scientists as is the case with man-made climate change, or 99.9% as is the case with evolution, do not count for nearly as much as we used to believe. For that matter, we do a terrible job of planning for the long term, particularly in postponing gratification, and we are wickedly bad at dealing with the implications of compound math. All of this makes it easy for us to forget about the previously painful market busts; facilitates our pushing stocks and markets on occasion to levels that make no mathematical sense; and allows us, regrettably, to ignore the logic of finite resources and a deteriorating climate until the consequences are pushed up our short-term noses.

The take-away from all of the above?

• Grantham forecasts U.S./developed world GDP growth to slow to 1.5 percent
• Investment opportunities may exist in commodities, agriculture, and other things food-related
• The outcome of the Fed’s current monetary policies will be painful
• Human nature- in particular, our unbridled optimism and focus on short-term gratification- will continue to result in asset bubbles and longer-term problems outside of the financial markets/economy/larger financial system

You can read Grantham’s latest investment newsletter on the GMO site here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Tuesday, August 4th, 2015 Agriculture, Bubbles, Capitalism, Civil Strife, Commodities, Crash Prophets, Energy, Environment, Federal Reserve, Food, GDP, Government, Income, Investing, Monetary Policy, Natural Resources, Population, Stocks, Vehicles Comments Off on Jeremy Grantham Identifies 10 ‘Potential Threats To Our Well-Being’

Peter Schiff: ‘Gold’s Going To Take Off’ When Fed Doesn’t Raise Interest Rates, Starts QE 4

Economist, financial broker/dealer, and author Peter Schiff appeared on the Fox Business Network yesterday. As the price of gold hit a 5-year low, the noted gold bull was asked his thoughts. Referring back to the dot-com bust and gold’s subsequent lift-off into the 2000s, Schiff told viewers:

I think people are making the same mistake again. They have faith in the Fed. They have faith in Yellen. This is the biggest bubble ever. And I think people should be buying gold, but they don’t know enough to do it.

Schiff, who correctly called the housing bust and 2008 economic crisis, added later:

The dollar has been rising on the idea that the Fed is going to raise rates. But I don’t think that it’s actually going to happen. I don’t think the Fed can raise rates. That’s why they’ve been at zero for seven years. This bubble is so big that even a small rate hike will prick it. So I think all the Fed can do is talk about raising rates. They know that they can’t do it. Now, could they do a 25-basis point hike just symbolically to pretend that they’re going to do more? Maybe. But I don’t even think they’re going to do that. I think they’re going to do QE 4, and when the market comes to terms with reality, gold’s going to take off. But when people are going to wake up? I can’t tell you. It’s amazing that they’re so clueless for so long.


“Gold Will Take Off Once Market Comes to Terms With Reality”
YouTube Video

The CEO and chief global strategist of Euro Pacific Capital remarked that he tells people to have ten to fifteen percent of their portfolio in gold, and still stands by the recommendation.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Tuesday, July 21st, 2015 Bubbles, Commodities, Crash Prophets, Currencies, Federal Reserve, Interest Rates, Monetary Policy, Precious Metals, Stimulus, Stocks Comments Off on Peter Schiff: ‘Gold’s Going To Take Off’ When Fed Doesn’t Raise Interest Rates, Starts QE 4

Jeremy Grantham Shares Top 10 Issues On His Mind Today

The last time I blogged about Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (oversees $118 billion in client assets as of March 31), he warned (once again) in an investment letter released around the start of May:

It seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble. And we are not there yet…

To remind you, we at GMO still believe that bubble territory for the S&P 500 is about 2250…

(Editor’s note: The S&P 500 ended the day at 2,109)

Grantham, whose individual clients have included current Secretary of State John Kerry and former Vice President Dick Cheney, should be coming out with a new advisory on the GMO website in a couple of weeks. Meanwhile, for readers who can’t get enough of Mr. Grantham’s insights, this afternoon I came across a piece on the Morningstar website entitled “10 obsessions of an investment guru.” Jason Stipp wrote right before the weekend:

Jeremy Grantham is the chief investment strategist at Grantham Mayo van Otterloo (GMO). Before launching into his formal keynote presentation at the 2015 Morningstar Investment Conference at Chicago, Grantham took a moment to tick off the top 10 issues on his mind today.”In my current role, I’m totally free to obsess about important issues that interest me,” he said. And here they are, fleshed out a bit with some quotes from Grantham’s commentaries…

Those who pay regular attention to Grantham will recognize some of those issues, including resource “limitations” and a Federal Reserve that’s forever blowing asset bubbles. However, in the Morningstar piece he also talks about income inequality, corporate (ir)responsibility, and, did I mention investment bubbles? From the article:

10) Investment bubbles. Grantham said we’re not there yet, but we’re well on our way as valuation levels approach the 2-sigma event that creates the sufficient but not necessary environment for bubbles. But every bubble needs a trigger — such as deal mania or mass speculation by individual investors. Those factors are not yet present, Grantham said. “I’m going to be incredibly prudent starting closer to the election,” Grantham added. “I recommend the same to you.”

This is a good read, which you can view in its entirety on the Morningstar website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Tuesday, July 14th, 2015 Bubbles, Crash Prophets, Federal Reserve, Income, Investing, Monetary Policy, Natural Resources, Stocks Comments Off on Jeremy Grantham Shares Top 10 Issues On His Mind Today

Jeremy Grantham: Fed Hell-Bent On Stimulating Asset Prices Until ‘Fully-Fledged Bubble’ Forms

Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (oversees $118 billion in client assets as of March 31, 2015), has just released his latest investment letter on the GMO website. Writing about the first quarter of 2015, Grantham, whose individual clients have included current Secretary of State John Kerry and former Vice President Dick Cheney, focused on U.S. economic growth and the bubble-blowing Federal Reserve. Regarding growth, Grantham wrote:

I am still just about certain about three things: first, our secular growth rate in the U.S. is indeed about 1.5% (at least as stated in traditional GDP accounting, wherein expensive barrels of oil increase GDP; perhaps closer to 1% in real life); second, economists move their estimates slowly and carefully in order to stay near the pack and minimize career risk (despite the recent IMF heroics); and third, that we do not like to give or receive bad news and, when in doubt, we tend to be optimistic…

On the Federal Reserve and asset bubbles, Grantham noted:

In the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully-fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006. Both of these were in fact stunning three-sigma events, by far the biggest equity bubble and housing bubble in U.S. history. Yellen, like both of her predecessors, has bragged about the Fed’s role in pushing up asset prices in order to get a wealth effect. Thus far, she seems to also share their view on feeling no responsibility to interfere with any asset bubble that may form. For me, recognizing the power of the Fed to move assets (although desperately limited power to boost the economy), it seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble. And we are not there yet

To remind you, we at GMO still believe that bubble territory for the S&P 500 is about 2250…

(Editor’s note: Bold added for emphasis)

The S&P 500 finished up today at 2,114.

Back on August 4, 2014, I blogged about Grantham’s second quarter 2014 letter, in which he predicted:

I am still a believer that the Fed will engineer a fully-fledged bubble (S&P 500 over 2250) before a very serious decline…

Grantham’s other forecasts in his latest letter on the GMO website included:

• U.S. Economic Cycle- “Still seems only middle-aged, despite its measured long duration”

• U.S. Housing Market- “In terms of houses built is still way below the old average, and house prices are only around long-term fair value; there is room for improvement in both in the next two years.”

• U.S. Stock Market Correction- “We could easily, of course, have a normal, modest bear market, down 10-20%, given all of the global troubles we have. If we do, then the odds of this super-cycle bull market lasting until the election would go from pretty good to even better.”

As I’ve highlighted on the “Crash Prophets” page, Jeremy Grantham has an incredible knack for identifying changes in the direction of the stock market. He also nailed the economic crisis late last decade. However, I don’t know how what kind of track record he has with correctly-calling the economic and housing cycles. I guess I’ll just have to see how these two pan out.

An update to the “7-Year Asset Class Real Return Forecasts” chart was also provided in “Are We the Stranded Asset?”, which can be viewed in its entirety on the GMO website here (.pdf format; starts p. 7).

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Monday, May 4th, 2015 Bubbles, Crash Prophets, Federal Reserve, GDP, Housing, Investing, Monetary Policy, Stimulus, Stocks Comments Off on Jeremy Grantham: Fed Hell-Bent On Stimulating Asset Prices Until ‘Fully-Fledged Bubble’ Forms
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