Voice of Keynesian Clowns: Jeremy Grantham

I have been following Jeremy Grantham for about two years, and unfortunately, I have moved from deep respect in Octobre 2008 to hilarious yet sad deception last quarter. Well today, he dug himself still lower...

I knew Keynes was his Hero, as keep on writing it, but I thought the speculator in Keynes was his hero, not the economic central planner and the inflationist... So, quite surprised I was I started reading his quarterly letter published today:

The worrying news is that most European countries, led by Germany (not surprisingly in this case), are coming on more like Hoover than Keynes. More surprisingly, Britain and half of the U.S. Congress are acting sympathetically to that trend, which is to emphasize government debt reduction over economic stimulus. Yet, after a relatively strong initial recovery, the growth rates of most developed economies are already slowing, despite the immense previous stimulus. You don’t have to be a passionate follower of Keynes to realize that to rapidly reduce deficits at this point is at least to flirt with a severe economic decline. We can all agree that we had a financial crisis, a drop in asset values, and an economic decline, all three of which were global (although centered in the developed countries), and all three of which were the worst since the Great Depression. All three were destined to head a whole lot deeper into the pit without the greatest governmental help in history, also global. Yet despite this help, the economic recovery was merely adequate, unlike the stock market recovery, which was sensational and, as often happens, disproportionate to the fundamental recovery. But in the last three months, more or less universally in the developed world, there has been a disturbing slackening in the rate of economic recovery. (Perhaps Canada and Australia on their own look okay, propped up by raw materials and, so far, un-popped housing bubbles.)

First of all, Hoover was very much an interventionist and was only surpassed by FDR before our current ear. I would suggest he reads some history book, and specially Rothbard's America's Great Depression — the whole book is available online, and you can download the PDF for offline reading.

Almost as sad is his prediction stock returns for the next 7 years. See for yourself:

Annualized 2.9% over 7 years for US Large Caps? Annualized 7.3% of US High Quality? Aren't there the historical average returns?

I admit that from now on, I won't waste any more time reading his newsletters :-(