Tags: Grannis | investors | dive | risk

Scott Grannis to Investors: Take the Plunge

By    |   Tuesday, 21 Jan 2014 04:19 PM

Come on in, the water's fine! says Scott Grannis, the ebullient former chief economist at Western Asset Management.

Investors should avoid holding cash and start putting money into riskier assets because there is almost no chance the economy will stumble at this point, according to Grannis.

He says a Bloomberg index of financial conditions reveals that financial markets have not been this healthy for the past two decades.

In his blog, Grannis writes that hiding in cash when yields are close to zero is a “very expensive undertaking, since it means foregoing the much higher yields available on risky assets.”

Editor’s Note: 18.79% Annual Returns . . . for Life?

He also has what could be a unique take on the Federal Reserve’s monetary strategy. He claims the Fed’s extended period of ultra-easy monetary policy (which it has begun unraveling) was forced not so much by worries about a weak economy as by the fact that investors around the globe have been scaredy-cats.

“It is ironic that the Fed’s extraordinarily accommodative policy stance is still interpreted by most observers to be reflective of a deep and abiding concern over the recovery’s fragility," Grannis writes. "Instead, as I’ve argued repeatedly, the Fed has in effect been forced to adopt an extraordinarily accommodative policy stance because the world has been so risk averse.”

He says the Bloomberg data he relies on — real-time measures of market sentiment, risk aversion, liquidity, credit risk and profit expectations — add up to a “big green light for investors.”

“Things just don’t get much better,” asserts Grannis, a supply-side economics adherent.

Some investors worry that the bull market is beginning to show its age. James Pethokoukis, a blogger for the American Enterprise Institute, notes the current U.S. expansion is a “mature one” by postwar standards. Since World War II, the average expansion has lasted 63 months, while the current one is 56 months old.

But Pethokoukis cites a Goldman Sachs conclusion that the current business cycle is only in its early to mid-range cycle because, among other reasons, there are no signs of overheating or imbalances, output and employment are growing at a moderate pace, and there is little inflation.

More recent economic history is also on the side of a continued bullish cycle, according to Pethokoukis. He says that since the 1970s, the average U.S. economic expansion actually has lasted much longer than previously, at 8 years, or 96 months.

Still, MarketWatch reports that consumers may not be feeling an overabundance of optimism.

A new survey of consumer sentiment from the University of Michigan and Thomson Reuters actually declined this month falling to a reading of 80.4 from 82.5 in December, MarketWatch says.

Editor’s Note: 18.79% Annual Returns . . . for Life?

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Investors should avoid holding cash and start putting money into riskier assets because there is almost no chance the economy will stumble at this point, according to Scott Grannis, the ebullient former chief economist at Western Asset Management.
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2014-19-21
Tuesday, 21 Jan 2014 04:19 PM
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