Jeremy Grantham: "The Fed Has Spent The Last 20 Years Manipulating The Stock Market"

Tyler Durden's picture

To those who have read GMO's last letter bashing the Fed, "Night of the Living Fed", there will be little new in Jeremy Grantham's interview with Bartiromo to be aired later today. For those who haven't, the GMO strategist does a terrific summary of how the Fed's economic central planning (a function it should not have, and should merely focus on monetary policy) has destroyed the stock market: "The Fed has spent the last 15, 20 years manipulating the stock market. I think they know what they do has no direct impact on the economy, the only weapon they have is the so-called wealth effect: if you can drive the market up 50%, people feel richer, they feel a little more confident, and the academics reckon they spend about 3% of that. The problem is they know very well how to stimulate the market, but they step away when the market gathers steam, and resign any responsibility for moderating a bull market that may get out of control, and I fear that the market will continue to rise, it will be continuously speculative. As a consequence you get a boom and bust... I think the Fed should settle for just controlling the money supply, not controlling the economy." Unfortunately, it is now too late, and the Fed, which in addition to lender of last resort, is the economic "controller" of only resort, now that fiscal policy is moot, will soon have to be overthrown for its disastrous effect on the US economy to be finally eliminated.

Much more in the interview below.


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Turd Ferguson's picture

Shouldn't Mr. Grantham be wearing a tinfoil hat? 

High Plains Drifter's picture

According to Karl Denniger?  Yes he should. It all sounds like tin to him.

Popo's picture

Because Denninger denies Fed market manipulation?   Uh.. no.  Try again.





LowProfile's picture


BRAVO 7's picture

go to now ye rich men, weep and howl for your miseries that shall come upon you.your riches are corrupted,you have lived in pleasure and been wanton. this day a grievous sore of poverty hath been left on the doorstep of AMERICA,thou art declared to be ICHABOD.
behold a pale horse

snowball777's picture

I told that baptist, "Half a tab!"

kaiserhoff's picture

I have no languages, but sometimes I speak in tongues.

(Vodka soaked watermelon, and couple of Ruskie girls will do that to you, and more;)

FEDbuster's picture

I would suggest he wears a Kevlar helmet and a Kevlar vest with ceramic plates.

Winston Smith 2009's picture

Nothing at all tinfoil about his comments in that excellent interview. The guy has a history of being correct and what he says is pretty much what's said here and against most of the BS you hear on MSNBC. He doesn't suggest what _should_ be allowed to happen (expose the frauds, stop the phony mark-to-myth, take the bastards who caused this into receivership, prosecute and imprison if found guilty thousands in the financial sector), but he points out what I believe to be a proper path working within the system _such as it is_.

Rusty Shorts's picture

 - hmm, I was just reading about this over at ;


"First off, your government made a promise to the corporate establishment not to obey law.  Not to obey law FOR TWENTY YEARS.  We are not talking “smartest guys in the room” and “conspiracy of fools” here.  We are talking THE government.  Granted.. it is very likely government had a darn good reason not to obey law.. and not to obey law for a good long time.  But, then ask.. to what length would government have to go to ensure law.. is not obeyed.. to ensure the constitution is rendered void and null?  What would a government have to do if the avoidance of the enforcement of law were threatened?  Now that was a tongue twister.  A government, no.. more importantly EVERY branch of government, would be compelled to seek out and eliminate truth, wherever and whenever truth (accidental or otherwise) threatened the government’s plan and the government’s “promise”.  These would be the three branches that the schoolbooks told us were designed to avoid conflicts of interest.  This would be the exact constitutional opposite of a government’s stated responsibility, promise and sworn oath to its citizenry."

prophet's picture

AAPL revenues $400B?  Will a billion people spend $1.10 per day on a device that makes phone calls, plays music and videos, and can be used to read books and magazines, and perhaps pay a small fee for some of that content.  Could be.

snowball777's picture

Depends. Will it actually make a damn call? Can I squint hard enough to read on it? Do I want to hold my hand in the air for an hourlong video?

prophet's picture

The holographic projection display system with a telepathic user interface enhanced by gesture based control should address your concerns.  So too would hooking up to your TV or laptop. 

Not a lot of additions are needed to make these things iGame compatible either. 

Consumer electronics convergence.

HarryWanger's picture

AAPL is down 20 cents as the once mighty CSCO falls 15%. I've said this since Spring, AAPL is the market. If it's not going down, the market ain't collapsing any time soon. And from what I'm seeing with everyone and their brothers, mothers and sisters walking like zombies drooling over anything Apple, it'll be a long, long time before that happens.

SpeakerFTD's picture

And from what I'm seeing with everyone and their brothers, mothers and sisters walking like zombies drooling over anything Apple, it'll be a long, long time before that happens.

You realize, of course, that sentiment like that is exactly when bull markets end.  


HarryWanger's picture

Nope. Bull market ends when/if Fed ever stops propping it up. And with our relationship with China, we can't allow that to happen, nor can the Chinese. It'll go on for a couple more decades before the real implosion happens and the game is up.

Think about it, if CSCO weren't down 15% today the market would be up. AAPL barely down, all the high p/e PCLN's of the world down a few pennies. If CSCO were down 5%, and that's a lot, the market would be flying high.

Eally Ucked's picture

Just imagine old world when your boss could not get hold of you 24/7, when music was not the most important in your life, nobody cared who were wearing what, who was fucking some silicon beauty somewhere in the bushes, when the cars were just means of transportation and so on. Could you?

I think at some point you will come back to earth and realize that you have bigger problems and you will have to deal with them.

The most important issue for you will be how to make some money to survive, and it won't come from selling services to each other (maybe for some time). 

jus_lite_reading's picture

"The only weapon they have is the so-called wealth effect: if you can drive the market up 50%, people feel richer, they feel a little more confident, and the academics reckon they spend about 3% of that."


He must have read my memoir...


FEDbuster's picture

Wonder how that worked out for the investors in the Zimbabwe stock exchange?  Just saying....  Price EVERYTHING in gold, nominal fiat pricing is a worthless measure.

lizzy36's picture

I think the dow should be renamed the "wealth effect" index.

After all the world is all about buying the right "brand" these days.

johny2's picture

its about time FED is shut down.

SheepDog-One's picture

When will Jeremy Graham now get heart attacked?

Revolution_starts_now's picture

"When will Jeremy Graham now get heart attacked?"

I think the bets are on where. I have "in the hot tub" and with " a lady that is not his wife".


TradingJoe's picture

"I think we all should take a little step back, it seems to me we got a little bit ahead of everything, including, unfortunately, ourselves". IMHO this market is setting up for a huge drop, which will include just about every asset class, we cannot and will not go higher from here without  a meaningful correction, should we, go higher, the fall/crash will be as much more severe, with all them nasty consequences! I am with you all on everything but I cannot escape this foul feeling I have in my stomach, for days now! All is not right but something is really strange!

Waterfallsparkles's picture

I get the same feeling that something is not right.  I am not sure but I think it has something to do with the fact that Bernanke is ignoring all of the Foreign Nations warnings and doing what ever he pleases no matter what.  I think there will be huge ramifications, if not a World War III.

Fearless Rick's picture

I am with you guys on "not feeling right." In fact, my blog posts the past two days have been:

There's Something Very Wrong and the Tea Party Knows It


Fed Plans Not Going So Smoothly; Harrisburg, PA on the Edge


While I may not be the brightest bulb in the box, I try to put the economic madness into some sort of meaningful form for ordinary people and have been chronicling economic events on a daily basis since 2006. It sometimes seems a hopeless cause, as I've been screaming "manipulation" for a long, consistent time, but Grantham's interview really made my day, as he's a respected authority, speaking the truth.

Markets are down again today and it just seems that without the direct injection of Fed money - and maybe even WITH it - the game seems to be nearing an end point. That may not be such a good thing in the short term, but I would truly love to go back to an economy and a stock market like the ones I grew up loving, circa. 1960s.

End the Fed. Mass arrests of bankers. Take back our nation. We really need to get motivated and mobilized or the oligarchy will steal what little is left.

Think gold and silver will save your soul? Either the government will eventually confiscate it or roving bands of outlaws will try to forcibly take it. Forget the butter, it's close to time for guns and bullets.

I said in my post yesterday that if the stock market doesn't go up and bond yields down when the Fed cranks up QE2, look out! The money is all going to the banks. BofA, JP Morgan, Wells and Citi are completely illiquid, insolvent and need to be taken down or out.

Our day of reckoning is closer than many people want to believe, IMO.

Pitchman's picture

Right on! It's not right.  In fact, it is all wrong and the tsunami is just off shore.

First there is the great unwind; economic collapse, followed by hyperinflation and then war.

Now you must change your moniker to Toxic Tide!

banksterhater's picture

Goldman just flashed they're closing GM order book 3 days early, I've maintained the GM IPO is holding this market up, so it's the 15th Monday when it might sell off.

Waterfallsparkles's picture

I think the problem is that the FED has taken contol over the Country.  They have neutered the President, the Congress and the Senate.  All of this control is in one mans hands, who is not elected by the People he controls.  This in my opinion is very much like a Dictatorship.  This one man can take from Americans thru Taxation and give to whoever he wants.  This is not the way a Democracy is supposed to be run.

onealpha's picture

It is a Republic... if you can keep it.

Crab Cake's picture

It was a Republic... and we lost it.

Ricky Bobby's picture

+10 - We are entering the Imperial phase, just like Rome. Look at the pomp and cost to have the boy emperor visit India. If that wasn't a top I don't know what is. The Empire is on "Thin Ice". Los zetas surely are barbarians at the gate. The only thing missing is a legion coming home and marching on DC.

Ricky Bobby's picture

On a site with some of the most clever user names, yours .. well what can I say brilliant.

onealpha's picture

Its all part of the plan...Sheeple

Oh regional Indian's picture

Much like the Lira story of the 80% sufferers.

Why, when it is public knowledge that the FED is a PRIVATE ENTITY (loud enough), should they be controlling anything at all?


He says the Fed should be controlling the money supply!!

Nuts. Till someone like him has the guts to actually call a spade a spade, we'll wander in this lie-lie land, asleep at the wheel.

Quite disgusting actually. All the big guys toe the party line and leak and speak that which is allowed only.


Waterfallsparkles's picture

On another note the FED is like a Credit Card given to every Citizen that they have to make payments on.  Yet, they have no control on what is charged on their Credit Card.  The FED decides what they will spend the Money on.  Foreign Governments need money, charge it, Banks need money charge it.

It is no wonder Americans are angry.  Who would not be when one man at the FED can charge whatever he wants on your credit card and then make you pay for it.  If you do not want to pay for it then they have the IRS which can take all of your assets and put you in Jail.  Yes, that is a Democracy all right.

Mercury's picture

Ron Paul should bring in Grantham to testify before Congress in round one of the Financial Services Committee vs. Bernanke.

Bearster's picture

What is the difference between monetary policy and central planning, or at least central planning of interest rates, and hence finance, capital formation, savings (or lack thereof), risk taking, determining where capital goes, etc.?

dehdhed's picture

The problem is they know very well how to stimulate the market, but they step away when the market gathers steam, and resign any responsibility for moderating a bull market that may get out of control, and I fear that the market will continue to rise

is he short or something? why so fearful?   i don't agree with what the fed is doing but if i found a bag of money laying in the street i'm gonna take it.   heck, i even bother to pick up a penny.

Bob's picture

Hey, he argues against the Fed using monitary policy as a tool for impacting the economy via the weak "academic" link to the stock market, but notes that while QE's don't attack the root problems in the real economy, they will drive ES.  He sees fair S&P value at 950, but will not be surprised to see it go to 1500 in "a couple years."  This he sees, however, as a bubble and, as a conservative guy, he doesn't avidly embrace it.  By 1500, he expects another bust . . . but knows it could happen before then. Hence his caution.

He doesn't say not to play, only that he's not a player.  He acknowledges it looks good for speculators.  He's guardedly bullish about EM's and miners. 

He doesn't like bubbles because the net cost once they pop is greater than the cumulative gains along the way.  And, of particular concern to him now, are the losses faced by retirees with zero yields--at a time when they would be consuming/stimulating the economy--as well as the corner the Fed will have painted itself into when another crash comes and interest rates are already at zero. 

dehdhed's picture

i just finished the interview.   man is this guy good.  a must watch in my opinion.

i couldn't edit my previous post or i would have junked myself by deleting it

Lucius Cornelius Sulla's picture

He doesn't like bubbles because the net cost once they pop is greater than the cumulative gains along the way

And therein lies the rub; anybody and everybody with savings is effectively being forced to speculate.  Even if you sit it out, you are losing purchasing power.  I refused to buy RE during the bubble because I knew it was a credit bubble that would end badly.  But I still end up picking up the tab for speculators vis a vie government intervention.  Same thing is happening here.  Even if you stay out of the casino, you will be forced to pay.

wisefool's picture

I feel your pain. Sarcasm on:

"Thanks for saving your money to bail out the people who splurged. You might as well feel good that it is being put to some use. before inflation makes it worthless within 3 years time.

When that happens you'll have nothing. But at least you won't be like the speculators with LNG trucks, Silos of Grain, rail cars full of coal, and barrells of crude all cluttering up the yard of those McMansions you paid for.

You are Welcome!"

iota's picture

...why did you get junked for that?