Grantham on asset bubbles, currency wars and risk to capital as stocks move from substantially over-priced to dangerously over-priced in the wake of QE:
“The Fed is trying to make cash look so ugly that it forces you to take your money out and speculate…but any gains in the short-term…will all be given back.”
“It [the Federal Reserve] wants us to go out there and buy stocks, which are overpriced because bonds they have manipulated into being even less attractive,” said Grantham, who is chief investment strategist of Grantham Mayo Van Otterloo, a Boston-based asset management firm, and a respected voice in the financial world.
“So, we’re being forced to choose between two overpriced assets. That is not always a terrific choice to make because there is a third choice, and that is, 'don't play the game and hold money in cash.'
“And cash has what people don't appreciate fully. And that is its 'optionality.' In other words, if anything crashes and burns in value—say the U.S. stock market—if you have no resources, it doesn't help you. If the bond market crashes, and you have no resources, it doesn't help you. And what cash is is an available resource. It buys you the right to buy the U.S. market if the S&P drops from 1,220 today to 900, which is what we think is fair value.”
Of course waiting for valuable opportunities always demands patience. Easy to say but hard for many to do.
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