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Grantham had this to say about crypto, "Cryptocurrencies leave me increasingly feeling like the boy watching the naked emperor passing in procession. So many significant people and institutions are admiring his incredible coat, which is so technically complicated and superior that normal people simply can't comprehend it and must take it on trust. I would not."
The truth that Grantham is attempting to expose is that the Fed wears no clothes.
Unfortunately, market participants have misunderstood that the gains have been a special gift from the Federal Reserve, and will not last forever. Directly to the point, Bitcoin has taken a round trip over the last twelve months, hitting highs of $69,000 before coming back down to earth in recent weeks, back at the $35,000 level it hit one year ago.
Grantham blames the Fed and believes their policies have made nearly all investors feel bulletproof as stocks, bonds, crypto, real estate, commodities all surged higher. Grantham expects huge losses are imminent.
"If valuations across all of these asset classes return even two-thirds of the way back to historical norms, total wealth losses will be on the order of $35 trillion in the US alone."
He then attacked the Federal Reserve for their terrible monetary policies that have created the monster.
"In a bubble, no one wants to hear the bear case. It is the worst kind of party-pooping. For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime,” Grantham said.
Grantham explains that the Fed is now stuck unwinding their bad policies. These are policies that have made people feel wealthy, and for him, that makes the Federal Reserve culpable for the impending pain coming to meet investors.
Grantham believes that the Fed knew exactly what they were doing, and they also should have a high degree of knowledge about what comes next.
"With the clear dangers of an equity bubble revealed in 2000 to 2002, the even greater dangers of a housing bubble in 2006 to 2010, and the extra risk of doing two asset bubbles together in Japan in the late 1980s and in the US in 2007, what has the Fed learned? Absolutely nothing, or so it would appear."
Of course, Grantham isn’t alone in suggesting the Federal Reserve has created the wild west. We at Brentwood Research have been screaming from the rooftops that what the Fed has giveth, they will now taketh away.
Investors who have benefited from the Federal Reserve’s awesome power would do well to pay attention. “Buy the dip” only makes sense when the Fed is buying too. But the Fed is winding it all down, and the market is having seizures.
Today witnessed a dramatic amount of volatility. The Nasdaq fell nearly 3% before ending the day in the green. This is a roller coaster that is happening with zero action from the Fed.
The Federal Reserve has become so correlated to the market, that they don’t need to do anything. They simply need to hint that they will, and like a good dog, markets roll over one way or another in anticipation. When they promise more tasty "free money" treats, markets explode higher. When they say they are "running out of snacks", markets dump lower.
But who can really know what they are saying right now?
It seems to us that adding assets to the balance sheet only to immediately remove them in the next meeting is the monetary equivalent of a dog chasing its own tail.
While it’s impossible not to feel the motion sickness as markets thrash around in the moment trying to predict the Fed’s real moves, we would all do well to take stock of where we are in the bigger picture. The Fed’s ability to control the outcomes of markets is now extremely limited.
TINA, an acronym for “there is no alternative”, has been the mantra that investors have been forced to adopt over the last decade and a half as the Federal Reserve has manipulated interest rates to 0% and expanded their balance sheet 10x’s. Lower interest rates have forced investors out of savings, out of fixed investments, and into risk assets.
There simply has been no alternative and why stocks and bonds have really been the only game in town over the last decade.
But, with the Fed forced to raise rates to at least “look” like they are “attempting” to fight inflation, we can be sure that what has been downhill sledding for investors for over a decade will now become a much higher climb ahead. We believe the reality is that the Fed is completely stuck. They are now intentionally staying behind the inflation curve.
We explain it all in our most recent presentation, On Thin Ice (view the presentation here).
Treasuries can no longer provide a safe haven with a Federal Reserve committed to raising interest rates. For sure, if they follow through, bondholders will lose value. Unfortunately, the only thing that would prevent the Fed from following through is a market collapse which then kills the other 60% of the 60/40 portfolio and why TINA is now dead.
Jeremy Grantham says it the following way, "The final feature of the great superbubbles has been a sustained narrowing of the market and unique underperformance of speculative stocks, many of which fall as the blue-chip market rises. This occurred in 1929, in 2000, and it is occurring now."
So if TINA is dead, who will replace her?
For your answer, look no further than gold. While markets have thrashed up and down, gold prices have steadily climbed higher. Gold is up roughly 5% in just the last five weeks.
On December 15th, the day of the last Fed meeting, gold prices hit lows of $1762. Today, despite all the mayhem everywhere else, gold prices rose consistently, ending the day at $1844 per ounce.
Institutional buyers are heeding Grantham’s call. The etf GLD has seen massive inflows in recent days. Last week GLD saw inflows of 33 tons. This massive inflow eclipses the 32-ton increase witnessed in May of 2021 that led to a $360 move higher in the price of gold in the three months thereafter.
With Treasuries offering little solace as a safe haven, with stocks facing a less accommodative Federal Reserve, and with cryptocurrencies revealing themselves as a risk asset 100% correlated with overvalued technology stocks, gold is proving itself as the new TINA.
There is no alternative safe haven than gold. Which is why it's time to say "Goodbye to TINA," and "Hello to GINA."
“Gold Is the New Alternative.”
Be sure to take the time to review our "On Thin Ice" presentation where we identify how this all plays out over time, and how you too can prepare.
Just don’t look for TINA to save you.
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