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You don't cure alcoholism by giving an alcoholic a quart of whisky

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May 14, 2009 – Comments (9)

Jeremy Grantham

I love to read.  I think that it is very important for anyone who wants to be a successful investor to read a ton.  While I was into books for a while, my latest thing is magazines.  Yeah, I know that a lot of the content is available for free on the web, but magazines are so desperate for subscribers that they are practically giving subscriptions away.

Take Sports Illustrated for example.  I got an offer from SI yesterday to subscriber for a year, $256 cover price, for $20 AND they'll send me a free NFL jacket of the team of my choice.  Are you kidding me?  I couldn't even buy a crappy jacket at the store for $20 bucks, let alone one that has a team logo on it.  Of course I'm subscribing.

On the business side of things, I get Forbes, Fortune, Kipplinger's, Smart Money, etc...  The only publication that I subscribe to that wasn’t dirt cheap is Barron's.  One of the benefits of subscribing to it though it that I can get Smart Money magazine for something like an additional $0.99 per year.

This month's issue of Smart Money came in the mail yesterday.  I was reading it last night and I came across an excellent interview with Jeremy Grantham.  Grantham has been a tremendously successful investor for decades who is known for going against the grain and being bullish when others are bearish and vice versa.  He's long stocks right now, but he is not tremendously optimistic about the future.  His views on where the U.S. is headed are very similar to what I have been saying here in my blog. 

Here's a small portion of his interview that is a must read:

Will we get out of this mess?

The stimulus is so great in the United States, China, and the United Kingdom, it will kick the economy up.  GDP will go back to positive for two to three quarters.  They'll assume everything is settled, that throwing money at it has worked.  But the long-term imbalance between over-producers [like China] and overspenders [like the U.S.] will continue.  It'll be a multiyear drag on growth.

We're just throwing money at the problems?

If the problem is that we consumer too much and borrow too much, does it make sense to borrow more and spend more?  It doesn't make sense to solve alcoholism by giving an alcoholic a quart of whiskey, but everyone believes that we must stimulate.  So that's why we feel this is a temporary cure.  This is like when you revive a drunk, he staggers down a few blocks, then falls down again.

That does not sound promising.

We're not rich, and we're undersaved and underpensioned.  Those will be a real brake on economic growth.  This will be a pretty long recovery period, longer than we're used to, but hopefully not as long as Japan took.  It will not be as long as the Depression, but it will be several years, and not just two.  Lord knows we have had several fat years.

Deej

9 Comments – Post Your Own

#1) On May 14, 2009 at 7:20 AM, TMFDeej (99.46) wrote:

The same issue contains a great article by my favorite Smart Money columnist Jack Hough on dividend stocks.  If I have the time later, I'll post the highlights.

Deej

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#2) On May 14, 2009 at 8:06 AM, camistocks (< 20) wrote:

On a side note: if a heavy alcoholic suddenly doesn't get his booze anymore, he will have a collapse. So to treat a heavy alcoholic you must reduce the booze slowly, slowly and train him for a new life...

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#3) On May 14, 2009 at 9:56 AM, kaskoosek (92.46) wrote:

camistocks

A couple of trillion is not slow. It is actually enormous and detrimental.

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#4) On May 14, 2009 at 10:04 AM, 4everlost (29.50) wrote:

Thanks Deej...

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#5) On May 14, 2009 at 12:50 PM, drummnutt (< 20) wrote:

Cami is correct. We have two devils that we could wrestle with

1/. GD2

2/. spend and borrow to keep things within reasonable limits (GDP etc).

Not to make light of the spending and the problems that this will cause in the future, but no one wants GD2. The tough political sell will be to raise taxes once production stabilises a bit. We all know how much Americans hate taxes thanks to an impossible idea of utopia spun by Regan, Bush 1 and cockhead Bush Jr! How can you fund a war AND lower taxes? He could have chosen not to go to war, or go to war and PAY for it.

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#6) On May 14, 2009 at 1:20 PM, russiangambit (29.49) wrote:

Cami's analogy is very good. If we withdraw  whisky (i.e. liquidity) completely, the economy will collapse. It almost happened last fall. Economy has to be trained to get back to lower level of spending slowly. Now, how you do that, I am not sure. I think spending is falling naturally right now, but it is bad for politicians (lower taxes) and bad for businesses, so they are trying their hardest to get the economy drunk again. What we need is moderation, - lower spending, lower taxes, less government, less risk. But it is hard for economy to stick to moderation and stay sober while all its buddies (government, FED, Treasury ) keep givinig it free whisky.

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#7) On May 14, 2009 at 1:30 PM, russiangambit (29.49) wrote:

> How can you fund a war AND lower taxes? He could have chosen not to go to war, or go to war and PAY for it.

Drum, I often disagree with you. But here I agree completely. If at the time the Congress was voting on the war they would also have to vote on 5% tax increase to cover the cost of war, the Iraq war probably wouldn't happened. They would've probably put more effort into reading all theose intelligence memos on WMDs and questioning them.

I always disagreed with the doctrine of pre-emptive strike practiced by the US and Israel. It makes the world very dangerous. What happens if other countries adopt it? We wouldn't want Russia or Pakistan or North Korea or Iran adopt such a policy. Who says then that the US has the right to do it?

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#8) On May 15, 2009 at 1:35 AM, starbucks4ever (98.98) wrote:

cami,

but our alcoholic is just consuming more and more. 

http://www.brillig.com/debt_clock/ 

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#9) On May 15, 2009 at 2:02 AM, ozzfan1317 (81.83) wrote:

Thanks for the Info. I agree this will likely be a slow gradual recovery. Our Economy went off of a cliff and it will take time for it to heal. However if you are willing to do thge research their are bargains to be had in the market.

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