“Bullish on safe havens”
This outlook – trust is breaking down, the past seems to be repeating itself – is why Grice said his investment outlook is very conservative for 2013.
“This may sound philosophical, but it isn’t. Financial markets don’t exist in a vacuum,” Grice said. “That breakdown in trust, the financial market analog of that is higher yields. If you don’t trust someone, what do you do? You want a high risk premium. You want higher interest rates.”
That’s why Grice said he is “bullish on safe havens.”
“I think this is the world that we’re moving into,” Grice said. “It hasn’t shown up in the markets yet. I expect it to.”
“With quality equities, gold, some cash, you have – I think – a reasonably robust portfolio of safe havens, which will actually do reasonably well for you,” he said.
Kill all the economists?
Though most of his talk was spent explaining the comingled dangers of rising inflation and declining trust, Grice included some distrust of his own, aimed squarely at the economics profession generally and the world’s central bankers more specifically. (Grice did not mince words, although, to be fair, he quickly abandoned his suggested mass slaughter for the milder proposition that most if not all economists should at the very least be ignored.)
Singling out Fed Chairman Ben Bernanke and his British counterpart, Mervyn King, Grice said they proved themselves overconfident and unreliable in the run-up to the 2008 crisis, and he doesn’t trust them now. He contrasted the past assurances of Bernanke (“We’ve never had a decline in house prices on a nationwide basis,” in 2005) and King (“People won’t be talking about this a year from now,” as the crisis began to unfold in September 2007) with what they’re saying now: Bernanke is “100 percent” confident the Fed can control inflation; King has “absolutely no doubt” that the British central bank will have an easier time reducing its balance sheet than it did expanding it.
“I think we should have doubts,” Grice countered. “If we had a little more doubt, we wouldn’t be in this mess.”
Grice said that recent history has shown the framework used by economists to be flawed, and that the central bankers should learn the same lesson he’s trying to instill in his 16-year-old son: “Mistakes are fine if you learn from them, it’s the systematic mistakes that are the problem.” But he’s worried that in neither case is the message sinking in. “I’m coming to think that the central banks have that kind of teenager about them,” he said.
Michael Skocpol is an editor and staff writer for Advisor Perspectives.