2011 Looks A Bit GRIM!

Wake-Up Call: Top 11 Trends of 2011

After the tumultuous years of the Great Recession, a battered people may wish that 2011 will bring a return to kinder, gentler times.  But that is not what we are predicting.  Instead, the fruits of government and institutional action – and inaction – on many fronts will ripen in unplanned-for fashions.  Trends we have previously identified, and that have been brewing for some time, will reach maturity in 2011, impacting just about everyone in the world.

1.  Wake-Up Call  The reputation of Gerald Celente and The Trends Research Institute is based on its willingness to “tell it like it is.”  Neither optimists nor pessimists, no matter whose interests it challenges, no matter whose feathers get ruffled, we are beholden to nothing but the facts … and follow them where they take us.  Though unafraid to call a spade a spade, we do so with as much respect as is appropriate to the matter.

Thus, prevailing conditions and future trends require us to call it the way we see it, and with all due respect, this is what we see: the proverbial “s#%t has hit the fan.”  The chickens have come home to roost, the genie is out of the bottle, and yes, the jig is up.

In 2011, the people of all nations will fully recognize how grave economic conditions have become, how ineffectual and self-serving the so-called solutions have been, and how dire the consequences will be.  Only little kids, ideologues, the uniformed, and the out-of-their-minds will still believe what they are being told by politicians, pundits and experts who have higher-ups to answer to, agendas to fill, and something to sell.

Having become convinced of the inability of leaders and know-it-all arbiters of everything to fulfill their promises, the people will do more than just question authority – they will defy authority.  The seeds of revolution will be sown in the streets of failing nations, on the Internet, and at the polling places.

2.  Crack-Up 2011  Among our Top Trends for last year was the “Crash of 2010.”  What happened?  The stock market didn’t crash.  We know.  We made it clear in our Autumn Trends Journal that we were not forecasting a stock market crash – the equity markets were no longer a legitimate indicator of recovery or the real state of the economy.  We pointed out that the action in the Dow was “merely a reflection of the cheaply borrowed dollars that were being used to gamble.”
 
What we did regard as reliable indicators included the employment numbers, the real estate market, currency pressures, and sovereign debt problems – all of which have bordered between crisis and disaster.  We informed readers, “The Trends Research Institute cannot predict what undreamed-of-schemes Central Banks will dream up this time….”  And dream and scheme they did.  TARP and the Obama stimulus were only the financial props that the government made public.  Just recently has it been revealed that secret backdoor bailouts amounting to over $20 trillion were funneled from the Federal Reserve, by way of “emergency lending programs,” to banks both foreign and domestic, hedge funds, select financial institutions, and favored corporations.

It was no different on the other side of the pond.  The basic treaties agreed upon to establish the European Monetary Union were breached in order to bail out bankrupt banks and float nations sinking in sovereign debt.
In 2011, with the arsenal of schemes depleted, we predict that teetering economies will collapse, currency wars will ensue, trade barriers will be erected, economic unions will splinter, and the onset of the “Greatest Depression” will be recognized by everyone … even if they refuse to acknowledge it.

3.  Screw the People  As times get even tougher and people get even poorer, the “authorities” will intensify their efforts to extract the funds needed to meet fiscal obligations.  The first round of “austerity measures” imposed by European governments provides the first taste of what to expect from recession-plagued nations.  As the Great Recession extends its global reach, those high-flying emerging markets, which “experts” claim are immune, will also be submerged beneath loads of crushing debt and will also resort to austerity measures of their own.
 
While there will be variations on the theme, the governments’ song will be the same: cut what you give, raise what you take.  Social safety nets will be torn and public services will be cut to the bone.  Getting a lot less will cost taxpayers a lot more.  While corporate tax rates are held sacrosanct and tax breaks and loopholes for the wealthy are maintained or widened, the arm of the revenuers and the arm of the law will reach ever deeper into the pockets of prols.  The dulled minds of bureaucrats, whose own jobs depend on a steady stream of public funds, will shine with creativity as they look for any angle to wring the last penny from working men and women.

Sales taxes, sin taxes, highway tolls, meter fees, park permits, license fees, water rates, and the fines for every minor violation – from nuisance laws to speeding tickets and jaywalking to litterbugging – will go as high as the traffic can bear … before it goes even higher.
 
4.  Crime Waves  No job + no money + compounding debt = high stress, strained relations, short fuses.  In 2011, with the fuse lit, it will be prime time for Crime Time.  With little hope, few options, closed doors, and deep despair, Americans who had never thought of themselves as criminals will be driven to do what they have to in order to survive.

As Gerald Celente says, “When people lose everything and they have nothing left to lose, they lose it.”  Besides, from top to bottom, crime has become institutionalized.  In governments worldwide and from Broad Street to Wall Street, throughout corporate culture, and even at the bottom of the pile – among the welfare cheats and disability frauds – taking a stab at crime was already “as American as apple pie.”

Aside from the “filthy rich,” hardship-driven crimes will be committed across the socioeconomic spectrum by legions of the on-the-edge desperate who will do whatever they must to keep a roof over their heads and put food on the table.
 
5.  Crackdown on Liberty  As crime rates rise, so will the voices demanding a crackdown.  Not only will fighting crime be a major plank in campaign platforms, it will provide yet another weapon in the crackdown on liberty.  Under the rubric of Homeland Security and with the avowed purpose of fighting a “War on Terror,” Americans have already been stripped of critical Constitutional Rights.  Now, with a new front opening up, a national crusade to “Get Tough on Crime” will be waged against the citizenry.  And just as in the “War on Terror,” where “suspected terrorists” are killed before proven guilty or jailed without trial, in the “War on Crime” everyone is a suspect until proven innocent.

Beyond the warrantless wire taps, computer intrusions, GPS monitoring, stop-and-frisk searches, full-body scanning, TSA groping, and CCTVs or Google Street View watching every move – even the skies will know no limit to surveillance.  Added to the satellite images taken from space, military-style aerial vehicles (UAVs) will soon bring the Afghanistan experience to American neighborhoods, starting with the Miami PD’s purchase of unmanned drones to hover over homes, follow suspects, and track enemies of the state.

6.  Alternative Energy  As gasoline prices speed past $3 a gallon and endless arguments about global warming wear on, the world is expecting the “usual suspects” of solar panels, wind and water turbines, geothermal, and biomass to provide tomorrow’s green, renewable power.  But our real energy future lies on the far side of these interim technologies.

In laboratories and workshops unnoticed by mainstream analysts, scientific visionaries and entrepreneurs are forging a new physics incorporating principles once thought impossible, working to create devices that liberate more energy than they consume.  Inventions that manipulate the hydrogen atom, spark low-temperature, radiation-free nuclear reactions, and capture useful power from the energy fields that surround us, are poised for commercialization.

What are they, and how long will it be before they can be brought to market?  Shrewd investors will ignore the “can’t be done” skepticism, and examine the new trend opportunities to determine the winners and reap the rewards.

And rewards there will be.  For those who are ahead of the times and on top of the trends of 2011 – developing, preparing, and planning for what lies ahead – there will be ample opportunities to be seized.  Fortunes, names, and careers will be made by tapping into the newly emerging energy trends that will come of age in 2011.
  
7.  Journalism 2.0  Though the trend has been in the making since the dawn of the Internet Revolution, 2011 will mark the year that new methods of news and information distribution will render the 20^th century model obsolete.  With universal access to publishing and broadcast technology, web news is able to escape the stultifying and elitist agendas of the mainstream media.  With its unparalleled reach across borders and language barriers, “Journalism 2.0” has the potential to influence and educate citizens in a way that governments and corporate media moguls would never permit.  Of the hundreds of trends we have forecast over three decades, few have the possibility of such far-reaching effects.
  
8.  Cyberwars  Just a decade ago, when the digital age was blooming and hackers were looked upon as annoying geeks, we forecast that the intrinsic fragility of the Internet and the vulnerability of the data it carried made it ripe for cyber-crime and cyber-warfare to flourish.  In 2000, even while downplaying the severity of the risk, governments and e-commerce titans boasted that they could provide ample defenses.

In 2010, every major government acknowledged that Cyberwar was a clear and present danger and, in fact, had already begun.  Stuxnet, WikiLeaks and a host of “Anonymous” battles have disrupted infrastructures, compromised government secrets, planted malware (secret digital agents) deep in the most crucial government, military and control centers, and closed down e-commerce at will.
  
The demonstrable effects of Cyberwar and its companion, Cybercrime, are already significant.  Equally disruptive will be the harsh measures taken by global governments –  in the name of Internet Security and fighting the “War on Terror” – to control free access to the web, identify its users, and literally shut down computers that it considers a threat to national security … however they define it.

9.  Youth of the World Unite  University degrees in hand yet out of work, in debt and with no prospects on the horizon, feeling betrayed and angry, forced to live back at home, with time on their hands and testosterone surging through their bodies –  young adults and 20-somethings are mad as hell, and they’re not going to take it anymore.
  
Educated enough to understand that they will ultimately have to shoulder the debt burden acquired by their governments, as well as suffer from austerity measures, they are also savvy enough to know that if they don’t fight “against the machine” now, they will be run over by it for the rest of their lives.  Filled with vigor, rife with passion, but not mature enough to control their impulses, the confrontations they engage in will often escalate disproportionately.
  
Anyone wondering about what happened to the protest spirit of earlier decades, will discover that all it takes to get youth back into the streets is a developed sense of the personal price that is being exacted from them.  
Government efforts to exert control and return the youth to quiet complacency will be ham-fisted and ineffectual.  Each small success and perceived incidence of government “caving” will lead to intensified protest.  The Revolution will be televised … and blogged, YouTubed and Twittered.

10.  End of The World!  Get ready for Armageddon. The closer we get to 2012, the louder the calls will be that the “End is Near!”
 
Of course there have always been sects, at any time in history, that saw signs and portents proving the end of the world was imminent.  But 2012 seems to hold a special meaning across a wide segment of “End-time” believers.
  
Among the Armageddonites, the actual end of the world and annihilation of the planet in 2012 is a matter of certainty.  Some point to scripture, be it Revelations or Luke, as the source for their prophesies.  Others say it was written in stone over a thousand years ago, in the detailed and sophisticated Mayan/Hopi calendar.  These believers pinpoint the coming of the “end” to occur on 21 December 2012.

Even the rational and informed who carefully follow the news of never-ending global crises, may sometimes feel the world is in a perilous state.  Both streams of thought are leading many to reevaluate their chances for personal survival, be it in heaven or on earth.

For the non-religious/non-prophesy prone, who fear economic, social and military chaos, “Survivalism” – and all that it entails – is a trend that will dominate in the year to come.
 
For the others, repenting, converting, doing penance and praying will take up much of the energy that could otherwise be directed toward securing their safety in the here and now.

11.  The Mystery Trend ... will be revealed the second week of January. 

Rest assured if there are any major developments or events that transpire between now and when the Trends Journal comes out, you will be notified via a Trend Alert.

Best wishes for a joyous holiday season and a healthy and prosperous new year.

Gerald Celente


CC: MMX The Trends Research Institute

Bernanke in Review

Kass: In Bernanke We Trust?

Doug Kass

"It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt."-- Mark Twain

Last night, Fed Chairman Ben Bernanke appeared on "60 Minutes." Here is the tape.

Among the more interesting comments was Bernanke's statement that he is 100% sure that the Fed can contain inflation.

As everyone is now acutely aware, I have long been skeptical of the Fed's QE2 program (and the equity market's positive response) and, for that matter, the monetary policies of Federal Reserve Chairmen Greenspan and Bernanke.

On this subject, I have previously chronicled numerous misguided comments made by the Fed Chairman over the past five years on derivatives, the financial crisis, housing and the economy (hat tip from Bill King for calling it to my attention).

On the Economy

• In February 2006, Ben Bernanke, as President Bush's Chairman of the Council of Economic Advisers, was responsible for drafting the Economic Report of the President, which claimed the following: "The economy has shifted from recovery to sustained expansion.... The U.S. economy continues to be well positioned for long-term growth." In this report, Bernanke projected the unemployment rate to be 5% from 2008 through 2011.
• On July 20, 2006, Fed Chairman Bernanke referred to the economy as "robust" and "strong."
• On February 15, 2007, Fed Chairman Bernanke said, "Overall economic prospects for households remain good. The labor market is expected to stay healthy. And real incomes should continue to rise. The business sector remains in excellent financial condition."
• On July 18, 2007, Fed Chairman Bernanke said, "Employment should continue to expand.... The global economy continues to be strong ... financial markets have remained supportive of economic growth."
• On February 27, 2008, Fed Chairman Bernanke said, "The nonfinancial business sector remains in good financial condition with strong profits, liquid balance sheets and corporate leverage near historic lows.... Projections for the unemployment rate in the fourth quarter of 2008 have a central tendency of 5.2% to 5.3%, up from the level of about 4.75% projected last July for the same period. By 2010, our most recent projections show output growth picking up to rates close to or a little above its longer-term trend, and the unemployment rate edging lower. The improvement reflects ... an anticipated moderation of the contraction in housing and the strains in financial and credit markets."
• On June 9, 2008, Fed Chairman Bernanke said, "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so."
• On May 5, 2009, in front of the Joint Economic Committee, Fed Chairman Bernanke said, "Currently, we don't think [the unemployment rate] will get to 10%." In November the unemployment rate hit 10.2%.

On the Housing Market

• July 1, 2005: Bernanke, then President Bush's Chairman of the Council of Economic Advisers had the following exchange with CNBC:

  CNBC interviewer: Ben, there's been a lot of talk about a housing bubble, particularly, you know, from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?Bernanke: Well, unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So, it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy.
  Interviewer: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying, "Oh, this is a bubble, and it's going to burst. And this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?
  Bernanke: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don't think it's gonna drive the economy too far from its full employment path, though.

• On February 15, 2006, Fed Chairman Bernanke said, "The housing market has been very strong for the past few years.... It seems to be the case, there are some straws in the wind, that housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise but not at the pace that they had been rising. So we expect the housing market to cool but not to change very sharply."
• On February 15, 2007, Fed Chairman Bernanke said, "The weakness in housing market activity and the slower appreciation of house prices do not seem to have spilled over to any significant extent to other sectors of the economy."
• On March 28, 2007, Fed Chairman Bernanke said, "The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."
• On May 17, 2007, Fed Chairman Bernanke said, "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."
• On February 27, 2008, Fed Chairman Bernanke said, "By later this year, housing will stop being such a big drag directly on GDP.... I am satisfied with the general approach that we're currently taking."

On the Financial Crisis

• On February 15, 2007, Fed Chairman Bernanke said, "The Federal Reserve takes financial crisis management extremely seriously, and we have made a number of efforts to improve our monitoring of the financial markets to study and assess vulnerabilities, and to strengthen our own crisis management procedures and our business continuity plans."
• On February 28, 2008, Fed Chairman Bernanke said, "Among the largest banks, the capital ratios remain good, and I don't expect any serious problems ... among the large, internationally active banks that make up a very substantial part of our banking system."
• On July 16, 2008, Fed Chairman Bernanke said that Fannie Mae (FNM) and Freddie Mac (FRE) are "adequately capitalized" and "in no danger of failing." Since then, Fannie Mae and Freddie Mac have received a $200 billion bailout and have been taken over by the federal government.

On Derivatives

While Warren Buffett warned that derivatives were "financial weapons of mass destruction" that pose a "mega-catastrophic risk" to the economy in 2003, Bernanke supported the deregulation of these risky schemes.

• In November of 2005, Mr. Bernanke was questioned by then-Senate Banking Committee Chairman Paul Sarbanes:

  Sarbanes: Warren Buffett has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system. The Financial Times has said so far, there has been no explosion, but the risks of this fast-growing market remain real. How do you respond to these concerns?Bernanke: I am more sanguine about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable. They provide methods by which risks can be shared, sliced and diced, and given to those most willing to bear them. They add, I believe, to the flexibility of the financial system in many different ways. With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve's responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.

• On February 27, 2008, Fed Chairman Bernanke said, "If you have two investment banks doing an over-the-counter derivatives transaction, presumably they both are well-informed and they can inform that transaction without necessarily any government intervention."
• On July 10, 2008, Fed Chairman Bernanke said, "Since September 2005, the Federal Reserve Bank of New York has been leading a major joint initiative by both the public and private sectors to improve arrangements for clearing and settling credit default swaps and other OTC derivatives.... I don't think the system is broken, but it does need some improvement in execution.

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

No Way to Run a War!

In Pakistan, Drones Won't Be Enough

Posted 11/29/2010 06:55 PM ET

 War On Terror: Three troubling developments in Pakistan call into question the effectiveness of the administration's drone-centered strategy there. It may be time to rethink it.

To be sure, the graveyard of "No. 3" al-Qaida figures eliminated by drones is deep. But many of these "kills" have turned out to be midlevel operatives outside al-Qaida's inner circle. 

The fact remains that no top-tier al-Qaida leader has been successfully targeted. Those still at large include: Osama bin Laden; his son, Saad bin Laden; Ayman al-Zawahiri; Adnan El Shukrijumah; Adam Gadahn; Suleiman al-Gaith; Mahfouz al-Walid; and Saif al-Adel.

The FBI's Most Wanted Terrorists list today is almost identical to its pre-9/11 list. The only difference is these monsters are in Pakistan instead of Afghanistan.

It bears repeating: Almost a decade after ordering the 9/11 attacks on America, al-Qaida's core leadership has not been decapitated from its body of followers. It's still intact and still calling the shots.

Take al-Adel, recently appointed by bin Laden to command al-Qaida's war against the West. He's believed to be behind the terror group's new "death by a thousand cuts" strategy of launching smaller, more frequent attacks — including Mumbai-style terror across Europe and cargo bombings of planes over U.S. cities.

As they continue to plot against us, we're going after these al-Qaida leaders in virtually the same way we did before 9/11 — lobbing missiles at them, only this time from drones instead of ships.

Over the past two years alone, the U.S. has carried out an astounding 154 drone missile strikes in Pakistan. Yet not a single one hit a truly high-value al-Qaida target.

Now the administration, according to the Washington Post, has asked the Pakistani government to let the CIA expand its target range from Pakistan's tribal region to areas around the city of Quetta, where intelligence suggests al-Qaida and Taliban leaders are holed up.

Islamabad reportedly has turned down the request, citing growing anger over civilian casualties from other drone strikes.

Meanwhile, Pakistan's military has further delayed its long-promised offensive against terrorists in North Waziristan, despite $2 billion in U.S. military aid for the campaign.

Washington has pushed for several years for Islamabad to launch a major military operation in the region, in lieu of our own boots on the ground there.

But Pakistan wouldn't budge, blaming a lack of resources. Now that the army has its money, it still won't march into the region.

The Joint Chiefs of Staff chairman, Adm. Mike Mullen, said last month that he was assured by Pakistan's army chief that there will be an offensive in the tribal region along the Afghan border.

Only the Pakistani is still not moving his forces into the region. The Pakistani government this week indicated it might delay the offensive by four to six months.

So here's what we're left with: an ineffective air campaign against al-Qaida's leadership, and no ground campaign at all against it.

The White House, in the words of security aide John Brennan, says it will continue to rely on "the scalpel" instead of "the hammer" to dismantle al-Qaida in Pakistan.

Clearly more is needed. It can start with tougher diplomacy. Tying aid closer to Islamabad's cooperation and anti-terror results is an obvious step.

In addition, the White House must issue a stern warning to Pakistan's leaders: Should a major U.S. attack be linked back to Pakistan, the U.S. will declare their country a terror state and deny it all aid — military and economic — as well as reinstate sanctions.

The risks are too great to continue to let this putative ally play a double game.

Obama: One Bad Job!

More CEOs Seeing Obama As Bad Hire

Posted 09/21/2010 07:03 PM ET

 View Enlarged Image

The Presidency: He doesn't look or sound radical. President Obama, in fact, is so calm, almost regal, he makes government takeovers and redistribution schemes seem almost reasonable. But the facade is wearing thin.

Fortune 500 leaders who believed Obama's moderate rhetoric, and even raised cash and voted for him, have soured on him. They now believe he's bad for business and hostile to the American free enterprise system.

Even die-hard Obama fan Tom Wilson, head of Allstate, says the president could have used some executive experience on his all-academic economics team. Not a single former corporate executive is in Obama's Cabinet or among his top economic advisers. "I think it was a hiring mistake for the administration," Wilson told CNN last week.

Wilson also suggests Obama convene a summit with business leaders to clear the air. "I'd spend less time on the G-20 and more time on the U.S. 100," he advised.

Problem is, CEOs have walked away from prior White House luncheons shocked at (1) Obama's dismissive reaction as they try to explain the harm of his anti-business policies and (2) his shallow understanding of business and economic matters.

They're not just put off by the president's harsh depiction of "fat cat bankers" and other anti-business bashings. They're more disturbed by his arrogant ignorance. "The truth is that not even the Franklin Roosevelt administration was as hostile to and ignorant about free enterprise as this administration is," said publisher Steve Forbes.

Few before the election dared call Obama the "s" word. Independent voters, who ensured Obama's victory, generally considered him to be a centrist or slightly left of center. Now they view him as extremely liberal. And by Democrats' own polling, a solid majority — 55% — of all likely voters now think "socialist" is a more accurate way to describe Obama.

Hate to say we told you so. But we did.

In 2008, we ran a 16-part series called "The Audacity of Socialism" that warned that Obama was a closet socialist and, if elected, would lead the most anti-business administration in U.S. history. As proof, we offered countless examples of Obama's past associations with not just socialists, but also out-and-out communists, and dug into his voting record as the most liberal member of the Senate. We also explained how Obama used his training as an Alinsky street organizer to disguise his radicalism and appeal to the middle class.

Our series was panned by some as over the top and alarmist. But the record was there for anyone to see. If only others had called things by their proper names back then, to vet rather than anoint, we might be well into a robust recovery now, possibly even closing in on the Dow's pre-crisis peak of 14,000.

Instead, we have an economy that's a basket case, tied up by reams of new government red tape, and a market mired in uncertainty, trading in a narrow band reminiscent of the 1970s.

The reason: We have an administration that meddles in virtually every part of the economy, "injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses," said Verizon Communications Chairman Ivan Seidenberg, an early Obama supporter now suffering buyer's remorse.

Capital is the lifeblood of the economy. Yet Obama is deliberately trying to downsize the financial sector. He says his sweeping new regulations are designed to clamp down on bank profits and shrink the sector as a share of the U.S. economy.

"What I think will change, what I think was an aberration, was a situation where corporate profits in the financial sector were such a heavy part of our overall profitability over the last decade," he says, adding that his "more vigorous regulatory regime" will "inhibit" the industry's growth.

Think about it: The president is engineering a controlled starvation of America's most important industry — financial capital — as punishment for allegedly causing a crisis that anti-bank community organizers and housing-rights zealots like him caused.

Intel CEO Paul Otellini, another early Obama supporter, now thinks the president "does not understand what it takes to create jobs." Yet he denies Obama is "anti-business."

It's time we stopped giving this president the benefit of the doubt, stopped holding back candid criticism. Too much is at stake. The signs that he's implementing a radically anti-capitalist agenda are too many and too obvious to ignore.

Given Obama's background, what could possibly make anybody think he would be pro-business?

As we argued before the election, it's no coincidence that:

• Practically every hero, mentor, adviser or friend in Obama's life has supported Marxism, including: Raila Odinga, James Cone, Dwight Hopkins, Jeremiah Wright, Frank Davis, Jim Wallis, Saul Alinsky, John McKnight, Cornel West and William Ayers, who launched Obama's political career in his living room.

• He was drawn to Marxists as a student and regularly attended "socialist conferences" (his words) at Columbia University.

• He devoted his first memoir to his late communist-sympathizing father, who proposed massive taxes and redistribution of income in Kenya. ("What is more important is to find means by which we can redistribute our economic gains to the benefit of all," wrote Barack Hussein Obama Sr., a Harvard-educated economist, in a 1965 policy paper completely ignored by the big media. "This is the government's obligation.")

• He eschewed the private sector after college to work as a community organizer for radical Alinsky groups in Chicago, agitating against banks and other businesses.

Ward Connerly, a conservative former University of California regent, says he's known many community organizers and all believed capitalism was evil and needed to be replaced by socialism.

"Every community organizer I've known believes that the system is inherently flawed," he said. "Capitalism doesn't work in their view, because it doesn't distribute enough of its benefits to enough people."

Perhaps Obama has outgrown such idealism? Not a chance.

"My views are not so much more refined than they were when I labored in obscurity as a community organizer," Obama revealed the year before he launched his run for the White House.

Obama's not a liberal in the tradition of Bill Clinton, Jimmy Carter or even Roosevelt. Obama's a liberal like we've never seen before. And he's planning to do even more damage to the economy, making November's election one of the most important in history.

Jeremy Grantham on the Federal Reserve Board

Full Transcript: Jeremy Grantham Interview

JEREMY GRANTHAM BARTIROMO, LULU CHIANG, INVESTOR AGENDA, DAVOS, BLOG, CNBC, CNBC.COM, MARKETS, STOCKS, STOCK MARKET, STOCK MARKET NEWS, CNBC STOCK NEWS, CNBC MARKET NEWS,

Posted By: Lulu Chiang | CNBC Senior Producer

cnbc.com

| 11 Nov 2010 | 11:46 AM ET

Legendary investor Jeremy Grantham, Chief Investment Strategist of Grantham, Mayo, Van Otterloo sat down with Maria Bartiromo in an extremely rare interview.

Grantham recommended institutional clients to sell into this rally. He is convinced that stocks are overpriced and cash is now the avenue for investors.

As an investment strategist for the past 30-years, Grantham has long been known for his timely calls.

In 1982, he said U.S. market was ripe for a "major rally."

And in 1989, he correctly called the top of the Japanese economy. In January 2000, he warned of an impending crash in tech stocks which took place two months later. And in April 2007, Grantham said we are now seeing the first worldwide bubble in history covering all asset classes.

When we sat down with Mr. Grantham earlier this week, he expressed worries about various pockets of the global markets, including emerging markets and U.S. stocks. Grantham is betting on a strong cash position and being patient about when to get back into the market.

Check out the complete transcript of Maria Bartiromo’s interview with Jeremy Grantham, or watch the complete interview here.

MARIA BARTIROMO: Great to have you on the program. Thanks so much for joining us.

JEREMY GRANTHAM: Very nice to be here.

BARTIROMO: Time and time again, your writings and your predictions have been right on in terms of investing and where we are in this market. From the tech bubble to beyond. Can you talk to us about where we are today in the stock market and what trends you see developing?

GRANTHAM: What I worry about most is the Fed's activity and — QE2 is just the latest demonstration of this. The Fed has spent most of the last 15, 20 years— manipulating the stock market whenever they feel the economy needs a bit of a kick. I think they know very well that what they do has no direct effect on the economy.

The only weapon they have is the so-called wealth effect. If you can drive the market up 50 percent, people feel richer. They feel a little more confident, and the academics reckon they spent about three percent of that. So, the market went up 80 percent last year. They should be spending 2.4 percent extra of— of the entire value of the stock market, which is about two percent of GDP. And that's a real kicker.

You don't see it because of the enormous counterdrag from the housing market— and— and its complete bust. But, it would have been worse with— without this. The problem is, they know very well how to stimulate the market. But, for whatever reason, they step away as the market gathers steam, and— and resign any responsibility for moderating— a bull market that may get out of control as we saw in '98 and '99 with Alan Greenspan, as we saw in the housing market.

And— I fear that the market will continue to rise. It will be continuously speculative. After all, when you can borrow at a rate that is negative after adjustment for inflation, it's not surprising that you would borrow a lot.

BARTIROMO: So, what are the implications of— of this constant easing and stimulation? You know, it— it seems the numbers are so mind boggling: $600 billion here.

GRANTHAM: They— they (CHUCKLE) are mind-boggling.

BARTIROMO: You know? (CHUCKLE) But, give us the—

GRANTHAM: The consequences are you get boom and bust. You— stimulate in '91. You let it get out of control. You have this colossal tech bubble in '99. Sixty-five times earnings for the— for the growth stocks. Then you have an epic bust. Then, of course, they're panic struck. They race back into battle with immense stimulus with negative real rates for three years.

And you get another— rise of risk taking and everything risky— prospered in '03, '04, '05, '06, '07 until we had what I called the first truly global bubble. It was pretty well everywhere in everything. It was in real estate. Almost everywhere. It was in stocks absolutely everywhere. And— and it was in the bond market to some considerable degree.

And that, of course, broke. They all break. That's the one thing they can't control. You can drive a market higher and eventually — of its sheer overpricing, it will eventually pop. And, typically, it seems to pop at the most inconvenient time. So, we're going to drive this one up, and this time there isn't much ammunition. In 2000, the Fed had a good balance sheet. The government had a good balance sheet.

In '08, it was still semi respectable, and— and now it's not. It's not very respectable at all. So, what are they going to use as ammunition if they cause another bubble and it breaks, let's say, in a couple of years? Then we might have some real Japanese-type experiences.

BARTIROMO: Where are the solutions then, if not this? What do you think ought to be done?

GRANTHAM: I think the Fed is not designed— to have effective tools to deal with the economy. It should settle for just controlling the money supply. And— if it insists, it can worry about inflation. The way you address a weak economy, particularly very substantial excess unemployment is through fiscal policy. You must either bribe man— manufacturers, corporations to hire people who have been unemployed, which they did in Germany. A lot of economists think that's perfectly effective.

Or you must go in there and hire people yourself as a government. Now, I— I believe in crowding out. So, I— I would never do it unless there was clearly quite a few million extra unemployed. I wouldn't go after too many skilled labor because there's never— enough of them to go around. And that does cause crowding out. I would go after the— what I called lightly-skilled workers.

The kind of people who were building the extra million-dollar— sorry— extra million houses in— in '05, '06 and '07. And find— and find jobs for them. We have an infrastructure that is decades behind schedule.

We could insulate every house in the Northeast. These are high-return projects, great— for society in general. And to— to allow people to sit there unemployed. Their skills are deteriorating. Their family morale goes to hell. And— it's a deadweight on society. And you have to remember when— when the government hires someone, he doesn't pay the full price like a corporation does.

He pays about half price because he pays a lot. He, the government— it, the government, pays a lot for someone sitting down unemployed. All the— all the many ways— that unemployed get— get helped plus— the government carries the atrophying of the skills. Society loses that, the longer they're unemployed.

BARTIROMO: So, what should the federal government be doing then? I mean, the housing industry, for example, missing in action. What is it going to take to get housing moving again? What is it gonna take to get businesses hiring again? If it's not the job of the Federal Reserve, what policy should we be seeing coming out of the government?

GRANTHAM: I think the Federal Reserve has— is in a very strong position to move against bubbles. Bubbles are the most dangerous thing— asset-class bubbles that come along. They're the most dangerous to investors. They're also the most dangerous to the economies of— as we have seen in Japan and in 1929 and now here. You've got to stop them.

The Fed has enormous power to move markets. And it— not necessarily immediately, but give them a year and they could bury a bull market. They could have headed off the great tech bubble. They could have headed off the housing bubble. They have other responsibilities— powers. They— they could have interfered with the quantity and quality of the sub-prime event. They chose not to.

In fact, Greenspan led the charge to deregulate this, deregulate that, deregulate everything, which was most— ill advised, and for which we have paid an enormous price. So, they can— they can stop bubbles, and— and they should. It's easy. It's a huge service. What you do now is— is— I like to say it's a bit like the Irish problem.

I wouldn't start the journey from here if I were you when you ask— the way. You— you really shouldn't allow the— situation to get into this shape. You should not have allowed the bubbles to form and to break. Digging out from a great bubble that has broken is so much harder than preventing it in the first place.

Japan has paid 20 years for the price of the greatest land— bubble and the greatest stock bubble in history. Far worse, in my opinion, than the South Sea bubble or the tulip bubble in many ways. The land under the Emperor's Palace really was worth the whole state of California, which is quite remarkable. But, we spent quite a few hours checking it, and it seemed to be true. And the price they paid— to dig out of that has, of course, been legendary.

And we better hope that we don't pay anything like that price. But, that is a risk. It's not— it's not certain that we will escape— without several years of— sub-average growth and— and stress to the system.

BARTIROMO: So, are there policies that the administration could be implementing?

GRANTHAM: It's really Congress. If Congress is bound and determined to— interfere with any proposed stimulus, then— we’re going to have a nice experiment and that is to see how the natural, recuperative powers of the economy stand up to this stress. I think it will probably muddle through. But, it won't be pretty. I— I don't think it will necessarily go backwards. But, it will go forward at a very sub-average rate. And I think that's the course that— would have to be recommended now is— it would be much better if Congress would shape up and— and do some sensible— stimulus program from here.

And it would be sensible if the Fed recognized it doesn't have that— that power, and— and get out of the way. Cranking out the printing press irritates all the foreign countries. Why wouldn't it? It's manipulating the dollar downwards. It's causing inflationary fears.

It's causing— commodities to go through the roof. Not led by gold by the way. Gold has gone up almost exactly the same in the last year as all the other metals. Everything is up. The commodity index in a year is up 35 percent. A weighted average of everything. And that isn't oil because oil is slightly less than that.

But, it is— a very dangerous situation. And it risks currency wars. If we're seen to be pushing down the dollar, when on technical terms— and fundamental terms, I should say, the dollar looks already pretty cheap, and we're clearly driving it down by aiming to increase inflation and— and swamping the system with money, why wouldn't— emerging countries take defensive action? And all of them are.

So, we're already in— in a— in a currency war in a way. It's a mild one, and I hope it stays that way. But, a currency manipulation is exactly the same as tariffs. It's a bit easier to change, a bit easier to back off. But, it has the same effect on global economy if we get into a currency war as if we got into a tariff war, which characterized the period after 1930 when the Smoot-Hawley Tariff Bill was passed. And— and— and they're talking about that even as we speak in— in— in Congress.

BARTIROMO: So, while so many people are talking about the Chinese as far as manipulating their currency, you say the Fed is manipulating these markets?

GRANTHAM: They are. And— and— and China is, of course, manipulating its currency. And it would make life easier for everybody if they would allow the currency to rise a— a little faster. But, it— it certainly weakens our hand enormously to go there and— and shout at them angrily when we're clearly doing the same thing. And this is what the— the German Finance Minister— the point he made two days ago.

BARTIROMO: Yeah. Let me ask you about emerging markets. You recommended an overweight position in emerging markets back in 2000 when not many people were talking about it. And, obviously, it was dead on, the right call as we've seen a huge move in the emerging markets. Do you think there's still room to run in the emerging markets? Or is that becoming a bubble?

GRANTHAM: Incidentally, the emerging market since— 2000 is 3.3 times the S&P. So, every $100 you have in the S&P, you would have had $330 starting from the same point in emerging. And after that incredible discrepancy, which by the way says the main event in investing should be getting the big picture right. It's nice to pick stocks. But, how many good stocks do you have to pick in a whole portfolio to equal that incredible move between the biggest asset class in the world, U.S. equities, and the third or fourth biggest asset class emerging markets?

It— it's these movements between the great asset classes that make you money. And I'm happy to say that that's the group that, GMO, I work with— asset allocation where we are students of bubbles. And— and— and, basically, financial history. It's a very entertaining job, I might say, which has made me forget the question.

BARTIROMO: The question is do you think that is now becoming overvalued? Is there still room to make money in emerging markets?

GRANTHAM: I'm pleased to say two and a half years ago, I did a quarterly letter called the Emerging Emerging Bubble, and I argued that in the following five years, the case for emerging would be seen as so crystal clear— that it could not possibly help but outperform and go to a premium PE. Now, up until then, they had always sold at a discount. Sometimes a substantial discount.

But, I — the case is this, they are growing at about six percent real. Six percent plus inflation. We are growing in the developed world at about two. Before '95, there was no difference. Before 1995. And now it's three to one. My argument two and a half years ago is what a simple bull case? You want to grow? Buy emerging.

You want to be conservative? Buy utility companies or the blue chips of— of— of the developed world. If you're going to grow at six, you're— you're— it is very appealing that you would outperform a world growing at two percent. And the developed world is slowing down. I— I say it has an incurable case of middle-aged spread.

It's just been there, done that. It's a little old. It's a little pastured. Doesn't have the population profile. Emerging does. And they have the attitude, and they have good finances. And— and they're really showing— a— a clean pair of heels to the developed world.

Now, it turns out that you— it's a bit more complicated. You don't actually find a strong correlation between— top-line GDP growth and making money in the market. It— it seems like you should. The fastest-growing countries should give you the highest return. They simply don't. But, there's only four of us— that— that believe that story. Everyone else in the world believes that if you grow fast like China, you'll outperform in the stock market.

And so, I'm reasoning two and a half years ago, everybody will think this way pretty soon. And surely— emerging countries will go to a big premium on— every dollar of earnings that they make. And they're beginning to. But, I think they've got at least a few years left. The bad news for us, because we're fairly purest value managers for mainly institutional clients, is we don't like to play games with overpriced assets.

And that's the world that we're in now. The Fed is driving the S&P, which is overpriced— the Standard & Poor's 500— a broad measure of the U.S. market, is driving it from already substantially overpriced into what I would call dangerously overpriced.

This is about the boundary line. We expect on a seven-year horizon one percent only plus inflation from the U.S. market. And now, as you push it up another 20 percent perhaps in the next year, it becomes dangerously overpriced. A bubble territory and ready to inflate to considerable pain. That's what we have to worry about.

So, you're caught between, if you want to become conservative, you've got to start taking— counteraction now. If— if you want to go with the flow, don't fight the Fed as they say— you should be prepared to speculate on very nimble feet. It's not our style as a firm. But, I think it's— probably a game that you could play with a pretty good chance of winning for— for a few more quarters.

BARTIROMO: A few more quarters. But, at some point— or is it today— would you be recommending selling into the rally?

GRANTHAM: Our institutional clients— sell very gracefully into this rally. We've already started to sell. We're not even— averagely weighted. We're modestly underweighted. And you must remember bonds are even worse than stocks on a seven-year forecast. So, you get caught in this paradox. It's very tempting— and this is what the Fed wants by the way.

It wants us to go out there and buy stocks, which are overpriced because bonds they have manipulated into being even less attractive. So, we’re being forced to choose between two overpriced assets. That is not always a terrific choice to make because there is a third choice, and that is don't play the game and hold money in cash.

And cash has a— a virtue that people don't appreciate fully. And that is its— its optionality. In other words, if anything crashes and burns in value— say the U.S. stock market, if you have no resources, it doesn't help you. If the bond market crashes, and you have no resources, it doesn't help you. And what cash is is an available resource. It buys you the right to buy the U.S. market if the S&P drops from 1,220 today to 900, which is what we think is fair value.

You then have some resources if you have some cash. There's another complexity and that is that we believe that the old-fashioned, super blue-chip franchise companies like Coca-Cola are also much cheaper than the rest of the market. So, if someone put a gun to my head and s— said, "I've got to buy stocks. What should I buy?" I'd say, "Buy two units of the Coca-Colas. They're the cheapest group in— in the equity world. Buttress it with a fairly large dose of emerging markets. They're a little overpriced. But, they've got potential. And— a lot more cash than normal for opportunities should the bubble blow up."

BARTIROMO: What about commodities? I mean, clearly, the story of China and the demand coming out of China has boosted all sorts of commodities. Is that bull run still in place?

GRANTHAM: I have an eccentric view on commodities not necessarily shared by my colleagues or by— almost anybody. And that is we're running out of everything. I think it will become devastatingly clear to everybody. I— I think we went through a great paradigm shift about five years ago and— we'd spent a 100 years with almost all commodities declining. Perhaps oil was about flat in real terms, adjusted for inflation.

But, everything else was declining: copper, corn, and so on. And, now, you look back five years later, you can't see that clearly at all. A lot of them seem like they've been going up for 50 years, a 100 years: copper— iron ore— tin. But— and— and— and oil. Oil has clearly broken out. It spent a 100 years at $16 in— in our currency until 1974. And then it doubled when OPEC started and it's been 20 years trading around 35, plus or minus a lot.

And then I think it doubled it again, and I think the trend line is probably about 75. So, the world has changed. We're entering a period where we're running out of everything. The growth rate of China and India is simply— can't be borne by declining quality of— of resources. And— and I think we're in a period that I call a chain-linked— crisis in commodities.

So, it'll be a crisis in rice. It will triple and it'll come down. But, then— then it'll be followed by one in corn and— and barley and so on. And— and copper will go up a lot, and then that will come down. But, oil will be in crisis mode. From now on, we just better get used to it. So, if you're afraid of inflation, I think— and if you can bring yourself to have a long horizon— and when I say long, I mean ten to 20 years, not the usual ten to 20 weeks— that locking up resources in the ground is a terrific idea.

Or locking up— timber, agricultural land will do just fine. A great inflation hedge. You will win, in my opinion. Very high probability over a long horizon. Now, have these things gotten ahead of themselves in the short term? Quite possibly yes. And that— that's what makes investing so tricky. If they were to break for whatever reason at all in the next year, I— I would suggest that is a great buying opportunity.

BARTIROMO: And—

GRANTHAM: To— to buy here is to trade off the long-term high prospects of winning with quite a reasonable chance of— of— of buying at a— a— a short-term peak.

BARTIROMO: So, is there value in some of the commodities producers? The equities

GRANTHAM: If they have stuff in the ground. If they're just processors, forget them. Shoot them, in fact. Because they're the people who will pay the price of constantly having to raise their prices paying more for their raw materials. But— if they've got stuff in the ground. The oil industry since 2000 has doubled against the stock market. They didn't double because they got brilliant.

They doubled because oil in the ground became worth four times what it was. And that is a wonderful thing for an oil company with good reserves. But, the same if you had mineral reserve. That— that's the play, I think, on commodities.

BARTIROMO: It's extraordinary that people are putting so much money into such low-yielding, fixed income— products. And— ignoring dividend payers, which of course in equities are— are even more competitive than— than the yields that you're seeing. You're seeing no yield in— in fixed income. Is that a bubble?

GRANTHAM: I— I don't call it a bubble because it's not— it's not driven by huge animal stir— spirits. They're not doing it to sell it at a huge profit. They're doing it because they were severely frightened— in the great crunch. It was a devastating event. And it could have c— turned out much worse than it did. It— it should have frightened people. It did frighten people and they'll still frightened for quite a while.

And what the Fed is trying to do is to make cash so ugly that it will force you to take it out and basically speculate. And in that, it's very successful, of course, with the hedge funds. They're out there speculating. Finally, the ordinary individuals are beginning to get so fed up with having no return on their cash that they're beginning to do a little bit more purchasing of equities. And that's what the Fed wants.

It wants to have the stocks go up, to make you feel a bit richer so that you'll spend a little more and give a short-term kick to the economy. But, it— it's a pretty circular argument. For every dollar of wealth effect you get here, as stocks go from overpriced to worse, you will give back in a year or two. And you'll give it back like it— like it happened in— in '08 at the very worse time.

All of the kicker that Greenspan had engineered for the '02, '03, '04 recovery and so on was all given back with interest. The market overcorrected through fair value. The housing market that was a huge driver of economic strength and a— actually masked structural unemployment with all those extra, unnecessary houses being built. All of that was given back similarly at the same time. It couldn't have been worse.

BARTIROMO: What are you expecting from the economy in 2011?

GRANTHAM: (Sigh.) I'm expecting 2011, 2012 to— and— and 20 as far as I can see to be less handsome than it used to be. I think we— we're on a trend lying growth of about two percent. And— I think we'll muddle through— quite well. The problem is in the not too distant future, stocks will be too expensive and they'll crack again. Risky, fixed-income will be too expensive and that will crack again.

And unless we're lucky, we will have yet another crisis without being able to lower the rates 'cause they'll still be low, without being able to issue too much moral hazard promises from the Fed because people will begin to find it pretty hollow. Cycle after cycle, the Fed is making basically— is flagging the same intention. Don't worry, guys. Speculate. We'll help you if something goes wrong. And each time something does go wrong and it gets more and more painful.

And, eventually, even— even— fairly unintelligent investors might get the point that this is not a good game to play indefinitely. I am impressed, however, how eager we have been to return to the game. We got a— a practically mortal blow, and, yet, everyone was back in there swinging last year. It wasn't just that the S&P went up 80, which I did call by the way. I said it would race up to 1,100. And— but, it was speculative so the— the junky part of the market went up 120 percent. This is a formidable— recognition of what the Fed can do when it wants to.

BARTIROMO: What about the dollar? Where do you see it?

GRANTHAM: The dollar is on fundamental purchasing power— it's a— a fairly cheap currency. And— as long as there's QE three, four, five and six, you'd have to bet that it's more probable that it will go down. Now, if it stirs up— a currency war, all bets are off. We haven't had one since the 1930s. We— who knows how that will play out? That's one thing that can completely change the game, and— and— very hard for me or anyone to guess what that would do.

But, if we avoid that, I think you have to count on the dollar being at least irregularly weaker until we finish the Q game, which is ma— basically just running a printing press and using it to push down artificially— the bond rate. And let me point out that the Fed's actions are taking money away from retirees.

They're the guys, and near retirees, who want to part their money on something safe as they near retirement. And they're offered minus after-inflation adjustment. There's no return at all. And where does that money go? It goes to relate the banks so that they're well capitalized again. Even though they were the people who exacerbated our problems.

And, hopefully, the redeeming feature in that infamous trade is that your corporations go out there, borrow money, build factories, hire people, which they're not doing because consumption is weak and because they were also terrified by the crunch. I— I think, therefore, under these conditions, low rates is actually hurting the economy. It's taking more money away from people who would have spent it —retirees — than are being spent by passing it on to financial enterprises and being distributed as bonuses to people who are rich and, therefore, save more.

So, I think it's a— a— bad idea at any time and a particularly bad idea now.

BARTIROMO: So, final question here. What are you recommending to institutional clients today? How— how should they be investing?

GRANTHAM: We recommend a very heavy overweight in— in the great franchise companies: the Coca-Cola’s , Johnson and Johnson's . I'm not recommending those two names. They're just examples. We're recommending a modest overweight in emerging, an underweight— in everything else. Extra cash reserves and— patience. But, I think if you're willing to speculate, you might find that this is an interesting one more year to speculate.

BARTIROMO: And—

GRANTHAM: But, be aware the ice is thin. It's overpriced. It's a dangerous game. Don't believe that it's somehow justified. It is not justified by anything except the crazy behavior of the Fed.

BARTIROMO: You said, "The ice is thin." In terms of these cracks, how significant a crack would you expect when, in fact, we do see a crack?

GRANTHAM: The trouble with bubbles is when they go, it's very hard to know how painful it will be. But, typically, they go racing back to fair value. So, if this market goes to 1,500 in a couple of years, by then, fair value might be at 950— 950 is painfully below 1,500. And by the time it gets there, the mysteries of momentum in— in the market— everyone likes to go in the same direction, and they shout, "Fire."

It— it's— usually the case that it doesn't stop at fair value— 950. So, it might go to 700. And— and you're talking another market that halves. It halved in 2000, and we thought it would by the way. We predicted a 50 percent decline. It halved this time in— in '08, '09. And I think it might very well halve again if it gets back to 1500.