X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2015 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
McAfee Secure sites help keep you safe from identity theft, credit card fraud, spyware, spam, viruses and online scams
Grantham's words of wisdom: Part III - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 29, 2013

    Grantham's words of wisdom: Part III

    This is the third and final part of our three-series article on Jeremy Grantham's thoughts as revealed on the Charlie Rose show. The write-up would focus on Jeremy Grantham's views with regard to elevated debt levels in America making an attempt to answer two questions: Have elevated debt levels in the US helped to promote real economic growth in the US? Is monetary stimulus the only solution to promote US economic growth?

    Have elevated debt levels in the US helped to promote real economic growth in the US? Grantham goes back to as early as 1982. Ronald Reagan was the US President then, and the debt to GDP ratio in the US was 1.25 times. Over the course of the next 30 years, the debt to GDP ratio nearly tripled to 3.5 times. However, contrary to expectations, the US growth rate dropped from around 3% in the 1980s to an average of less than 2% in the last ten years.

    Thus, Grantham believes that it is a myth that growth in GDP can be achieved by pumping more money into the system through cheap debt. By keeping interest rates artificially low, money is being transferred from the retirees to people who run hedge funds and the banking system in general. The required amount of capital expenditure to boost the US economy is not happening and the money supply is unnecessarily chasing financial assets and propping up their prices artificially.

    Is monetary stimulus the only solution to promote US economic growth? Grantham dismisses the fact that the debt levels should be brought down by hook or by crook in a hurry. He believes that there should be a twenty years plan to get out of the 'rat hole'. Debt at the end of the day is a 'paper' while the 'real world' comprises of the quality and the quantity of people and the quality and quantity of capital spending. Money supply should chase productive assets and he goes on to add that the common assumption that there is very little scope for capital spending on the Government account in a developed country like the US is devoid of any merit. Projects like installation of solar panels, insulation of every cold area and redoing the grid system would not only be productive but also have a high societal return.

    Grantham concludes the conversation with Charlie Rose on a humorous note by saying that usual economic assumptions that markets take care of themselves and that people are rational and that their behaviour is guided by common sense have failed to hold true in the real world and therein lies the difference between sophisticated economic theories and functioning of the real world.

    We agree with Jeremy Grantham's answers to both the questions as illustrated above. Thus, we continue to remain circumspect with the recent surge in US stock markets and false hopes of economic revival connected with it.

    However, as pointed out in Part II of this series, there is always a possibility that while an economy may look dismal, a portfolio of carefully picked stocks based on their fundamentals can still do very well.

    Grantham's words of wisdom - Previous article | All Articles

     

     

     
     
    Equitymaster requests your view! Post a comment on "Grantham's words of wisdom: Part III". Click here!
      

     

    More Views on News

    Sensex: Where to from here? (The 5 Minute Wrapup)

    Sep 5, 2015

    Your guess would be as good as ours. But the fact of the matter is that a lot of the movement will depend on these stocks.

    The secret that earned Buffett his 400-bagger! (The 5 Minute Wrapup)

    Sep 4, 2015

    The lesson in patience that Buffett learnt from his favourite stock GEICO.

    This is a rigged-up stock market (The Daily Reckoning)

    Sep 4, 2015

    Bill discusses how the US stock market is fed large doses of credit by the Fed.

    The can is no longer rolling along (The Daily Reckoning)

    Sep 3, 2015

    Bill on why market pressures will lead central bankers to continue with their favourite activity.

    Can the Markets be Saved? (The 5 Minute Wrapup)

    Sep 2, 2015

    The impact of Fed's interest rate moves on your stocks.

    More Views on News

    Most Popular

    Markets are crashing. Here's what you should do(The 5 Minute Wrapup)

    Aug 24, 2015

    Between good news and good prices, what should long term investors choose?

    No jobs, no sales: Everything is going wrong with real estate(The Daily Reckoning)

    Aug 28, 2015

    As fewer new homes are being built, the construction industry is feeling the heat.

    Five Reasons to Trade Commodity Futures(Daily Profit Hunter)

    Sep 1, 2015

    Asad in his video discusses five reasons to trade commodity futures

    Buying an under-construction property? Keep this in mind...(Mutual Fund Corner)

    Aug 26, 2015

    Buying an under-construction property, though cheaper, is riskier than buying one that is complete. PersonalFN discusses what you should keep in mind.

    Has China Crisis made Gold Attractive for Indians?(Outside View)

    Aug 27, 2015

    With the Chinese economy mired in crises the appeal for gold has revived in India.

    More
    © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Before acting on any recommendation, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: 91-22-6143 4055. Fax: 91-22-2202 8550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    S&P BSE SENSEX


    Sep 4, 2015 (Close)
    View Detailed Quote

    MARKET STATS

    1. Go