April 30, 2008
A Reading on Economic and Financial Type Stuff
Ever since I learned about him through one of my macroeconomics classes, I've always admired Paul Volcker's actions while we was Chairman of the Federal Reserve from 1979 to 1987. He saw that inflation was out of control, and he raised interest rates, even though he knew it would cause a recession. He sparked massive protests against him, both among the populace and on Capitol Hill, and yet he stuck to his guns and did what we knew was the right thing for the long term well being of the American economy. Namely, that meant sending the U.S. into the deepest recession since the 1930's so that double digit inflation was a thing of the past. Eventually, such defiance got him replaced as Fed Chairman. Such political courage seems to be rare or non-existent these days.
Anyway, the purpose of this wasn't to bore you with stories of people I admire, but to direct you toward the letter to investors that Jeremy Grantham sent out for the first quarter of 2008. Grantham heads GMO, which is a "global investment management firm," and Grantham is a seriously smart guy. One thing that caught my attention was last March when he predicted that "at least one major bank (broadly defined) will have failed [in the next five years]." Bear Stearns, anyone?
Anyway, the letter seemed very interesting to me (especially the presidential cycle part), and so I thought I'd share it. I hope you agree.