Despite Wall Street investors and speculators cheering on the roaring stock market and proclaiming that the happy days are here again, it appears that some well-known investment firms are already beginning to help their clients move out of the way of the upcoming financial crisis.
Case in point, Jeremy Grantham, co-founder and chief investment strategist of the $117 billion GMO, wrote in a new quarterly letter about how Federal Reserve Chair Janet Yellen is abiding by the policies of her predecessors, Alan Greenspan and Ben Bernanke, which consists of persisting with artificially low interest rates.
Grantham opined that history shows us that ultra low interest rates promote “extreme speculation.” However, Yellen akin to her predecessors will simply attempt to limit the damage posed by the bursting of the various bubbles currently engulfing the financial markets at this point in time.
Here is what Grantham wrote regarding the United States central bank refusing to learn from history:
“I had thought that central bankers by now, after so much unnecessary pain, might have begun to compromise on this matter, but no such luck, at least in the case of the Fed. The evidence against this policy after two of the handful of the most painful burst bubbles in history is impressive. But not nearly as impressive as the unwillingness of academics to back off from closely held theories in the face of mere evidence.”
How will it end? Not well. According to Grantham, he believes this is the “affirmation of moral hazard.”
“This affirmation of moral hazard – we will not move to stop bubbles, dear investors, but will help you out when things go badly wrong – should be of great encouragement to speculators and improve the odds of having a fully-fledged equity bubble before this current episode ends.”
In other words, be afraid…be very afraid every time Yellen opens her mouth, and the bubble-induced markets cheer her on.
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