Legendary investor Jeremy Grantham says the US Federal Reserve is killing the recovery of the world’s biggest economy and the ”next bust will be unlike any other”.
Mr Grantham – the cofounder and chief investment strategist at the $US112 billion ($123 billion) Boston-based fund manager GMO –said he wouldn’t invest his clients’ money in US stocks for at least the next seven years because of the Fed’s ”misguided policies”.
Mr Grantham has an impeccable track record, having called both the internet bubble and then the US housing bubble. In November he said he believed the US sharemarket could rise another 30 per cent, although he believed it was overvalued, before crashing again.
”We invest our clients’ money based on our seven-year prediction,” Mr Grantham told Fortune.”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 central 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 become cheap again. That’s how we will pay for this. It’s going to be very painful for investors”.
Mr Grantham said the Fed’s $US85 billion a month bond buying program had failed to stimulate the economy, saying that there was no proof that more debt creates growth.
”It’s quite likely that the recovery has been slowed down because of the Fed’s actions,” he said.
”Go back to the 1980s and the US 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 has slowed.”
Full article: ‘Very painful’: World heading for bust ‘unlike any other’, says Jeremy Grantham (Sidney Morning Herald)