Wednesday, February 29, 2012

Top Investment Manager: “Capitalism Threatens Our Existence”

Here's more proof that just because you are a successful money manager, it doesn't mean that you understand basic economics:

Al Lewis at Market Watch writes:
With all the news focused on Warren Buffett’s annual shareholder letter, it was easy to miss Jeremy Grantham’s more urgent missive.

Like Buffett, Grantham is a legendary value investor. He’s co-founder of the Boston-based investment firm GMO LLC, which manages $97 billion. That’s about half the market value of Berkshire Hathaway Inc. but still big enough to produce a noteworthy letter...

Grantham, however, takes a longer view, and isn’t so “awe shucks” about the future of our broken economic system.

“Capitalism,” he writes, “threatens our existence.”

Already, capitalism is proving that Karl Marx and Friedrich Engels were at least partially correct [says Grantham]. They “looked forward to globalization and the supranational company because they argued it would make capitalism even more powerful, overreaching, and eventually reckless,” Grantham writes.

Globalization “would ... offer the capitalists more rope to hang themselves with ... rope ... bought from briskly competing capitalists, eager till the end for a good deal.”

Grantham, who is British, studied economics at the University of Sheffield and has an MBA from Harvard Business School.
Grantham, of course,  mistakenly believes we live in a capitalistic economic system, which we don't. It is a system of government intervention, where government leaders in cahoots with crony capitalists create advantages for the cronies. It is a Mussolini-type economic system.

Marx may have had a bunch of mad economic views in his mind, but most assuredly, he wasn't thinking about Mussolini economics. It is terrible that a successful money manager doesn't even understand the economic system he is operating under. Most bizarre, Grantham wants an expansion of the Mussolini act. Lewis writes mlore, quoting Grantham:
Governments must step in. “To interfere with Marx’s apocalyptic vision, we need some enlightened governmental moderation ... before capitalism gets so cocky that we have some serious social reaction.”
Governments are the problem. We don't need an expanded government so that more crony deals can be cut. We need less government.

And what would be an absurd economic argument without bringing in the Malthusian fallacy. :
Economic theory ignores natural laws. It suffers an “absolute inability to process the finiteness of resources. ... Capitalism wants to eat into ... limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today...It’s not just inexpensive oil we are running out of: The “loss of our collective ability to feed ourselves, through erosion and fertilizer depletion — has received little or no attention.”
For a refutation of this absurdity, see here.

Bottom line: Never trust an investment manager who takes up central planning as a hobby. Babe Ruth was great at hitting home runs, but it doesn't mean that he knew a damn thing about the physics of how he did it. Money managers are proving, regularly, from Buffett to Grantham that they consider themselves experts in fields where they are clueless. Don't ever fly in a plane designed by Babe Ruth or an economy designed by Buffet or Grantham.


  1. Love it! The answer is more crony capitalism of course! My guess is that he is probably ill equipped (skills and education wise) to actually manage money in a true free market, much less a centrally planned one that is falling apart at the seems. I have to believe that as more central banker economic manipulation takes place, these weaklings that got to where they are by elite connections are going to be taken apart by hedge fund rouges like Kyle Bass and Hugh Hendry.

    Someone that thinks like this does not belong managing other people's money.

  2. I think someone needs to show him this:

  3. When they talk of banking, they are in some sense correct; we should further regulate the banks until they are boring risk averse lenders.

    But to call current banking a version of capitalism is perverse. A free market in banking would look nothing like the artificially constructed industry we now have, all from regulation and the Fed in order to degrade money so the government can deficit spend with impunity.

  4. This guy is the probabilistic outcome of a million monkeys on a type-writer!


  5. I'm an investment manager and, sadly, my knowledge of Keynes and economics seems to be hurting me of late.

    The ever-expanding scale of intervention by the Fed continues to prop-up horrible businesses, which I refuse to invest in (banks, over-leveraged companies, insurance scams (AIG), etc..), while gold and well-managed, unlevered companies underperform.

    Thus, artificial, subsidized outperformance by ignorant, statist, chuckleheads like Grantham continue to make him look smart.

    As long as the government has the ability to print money, manipulate markets, AND fabricate the economic figures, this crony-capitalist investment environment could potentially go on for much longer.

  6. It's framing to ramp up crony capitalism to new levels.