Do you hate the FED?

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FORTUNE -- If you hate the Federal Reserve, you have a new hero.

A few weeks ago, Jeremy Grantham, the co-founder of money management firm GMO, called newly appointed Federal Reserve chairman Janet Yellen "ignorant" in the New York Times. He also said the reason for the slow recovery was not the severe financial crisis, continued high unemployment, or the many standoffs in Washington. Instead, he blamed the Fed for ruining the recovery it was supposed to stimulate. To someone who believes in the laws of economics, it's hard to overstate how odd that claim is. It's positively bonkers.

Low interest rates stimulate the economy. The Fed has done everything in its power to keep interest rates down, lower and longer than anyone can remember. That should have helped the economy. And yet the recovery has been just meh.

So, either Grantham is bonkers, or he is onto something. Fortune recently caught up with him to find out.

Fortune: You believe the Fed's policies, particularly quantitative easing, have slowed the recovery. What's your proof?

Grantham: It's quite likely that the recovery has been slowed down because of the Fed's actions. Of course, we're dealing with anecdotal evidence here ecause there is no control. But go back to the 1980s and the U.S. had an aggregate debt level of about 1.3 times GDP. Then we had a massive spike over the next two decades to about 3.3 times debt. And GDP over that time period has been slowed. There isn't any room in that data for the belief that more debt creates growth.

MORE: The Fed doesn't care about the unemployment rate anymore

In the economic crisis after World War I, there was no attempt at intervention or bailouts, and the economy came roaring back. In the S&L crisis, we liquidated the bad banks and their bad real estate bets. Property prices fell, capitalist juices

started to flow, and the economy came roaring back. This time around, we did not liquidate the guys who made the bad bets.

Can you really blame the Fed for the bailouts? That was an act of Congress.

I don't like to get into the details. The Bernanke put -- the market belief that if anything goes bad the Fed will come to the rescue -- has had a profound impact on people and how they act.

Okay, but that's still not proof that quantitative easing slowed the recovery.

There's no proof on the other side, that the economy is any stronger from quantitative easing. There's some indication that

the crash would have been worse and the downturn would have been sharper had the Fed not stepped in, but by now the

depths of that recession would have been forgotten, the system would have been healthier, and we would have regained our growth.

It's economic doctrine that lower interest rates boost the economy. Are you saying that's wrong?

Economic doctrine says the market is efficient. My view of the economy is not really principle-based. Higher interest rates would have increased the wealth of savers. Instead, they became collateral damage of Bernanke's policies. The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle. There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not. It's anecdotal evidence, but we have never had such a limited recovery.

MORE: Janet Yellen: The Fed will steer clear of bitcoin

But the Fed does seem to have boosted stocks. Even if it did nothing else, doesn't a better market help the economy?

Yes, I agree that the Fed can manipulate stock prices. That's perhaps the only thing they can do. But why would you want to get an advantage from the wealth effect when you know you are going to have to give it all back when the Fed reverses course. At the same time, the Fed encourages steady increasing leverage and more asset bubbles. It's clear to most investing professionals that they can benefit from an asymmetric bet here. The Fed gives them very cheap leverage on the upside, and then bails them out on the downside. And you should have more confidence of that now. The only ones who have really benefited from QE are hedge fund managers.

Okay, but then I guess that means you think stocks are going higher? I thought I had read your prediction that the market would disappoint investors.

We do think the market is going to go higher because the Fed hasn't ended its game, and it won't stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market's mean.

That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.

So are you putting your client's money into the market?

No. You asked me where the market is headed from here. But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money. We invest our clients' money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before.

Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.

Tencent [700] vs Apple

click for better view
chart 1 - apple reaching 600
chart 2 - tencent [stock code 700] reaching 600
chart 3 - apple reaching 700 after a steep correction at 600

tencent is a china stock that is the favorite among fund managers and as hedged derivatives for investment banks.

can you tell the difference between apple and tencent from the chart, looks similar hah.

the road ahead for tencent will begin to look rough as 700 is going through the J curve phenomena that apple endured when it is the darling of the stock market. it must keep on rising faster to make it look attractive thus every stock will go through the J curve phenomena when it becomes a favorite in a sector or in a market.

if you have been investing in 700, do some hedge. if you want to invest in 700, you are warned here that the return on investment does not look so attractive from now on unless you see a steep correction, still then, the last leg up will be fast and the drop as well, so you must be contented with making returns that are not 10/20 folds, the time to make easy money has passed, but only in percentage terms of 20/30.

Market volatility will continue, here's why

watch the video of Marc Faber at
http://www.cnbc.com/id/101386850

Global market volatility is not just down to the U.S. Federal Reserve's tapering of its monetary stimulus program, according to influential investor Marc Faber, who warned that the wild swings seen in recent weeks are also down to a global slowdown in growth.
"It would seem to me that it's not just tapering that is putting pressure on markets," Faber, the author of the closely watched "Gloom, Boom & Doom Report" told CNBC on Tuesday. "In emerging economies we have practically no growth, we have a slowdown in China that is more meaningful than the strategists seem to think and than the official, Chinese statistics seem to suggest."
"That then puts pressure on the earnings of the multinationals because most of the growth in the world over the last five years has come from emerging economies," he told CNBC Europe's "Squawk Box." No growth, he said, was causing "a vicious circle on the downside" with slowing emerging economies and inflated asset markets that are now deflating, in turn putting more pressure on asset prices and on the economies.
(Read more: Global stock selloff – Rumble or rout?)

Faber's comments come as volatility in equity markets continued this week, prompting concerns among traders and investors that markets were at the start of a sharp correction. The moves lower follow a rally last year on the back of the U.S. Federal Reserve's monetary stimulus.
(Read more: Look out – Technicians see more selling)
Since the Fed started tapering its monthly asset purchases by $10 billion a month in December and another $10 billion in January, stock markets have taken a tumble. Emerging markets fell first; this week the U.S. and Europe have also seen significant weakness.

Spencer Platt | Getty Images News | Getty Images

On Monday, U.S. stocks saw their worst start to February since 1933 after a manufacturing report heightened concern about the strength of the U.S. economy. Overall factory activity hit an eight-month low in January as new order growth plunged by the most in 33 years.
(Read more: Emerging markets – is it time to bottom fish?)

Illustrating the heightened state of concern among investors, the CBOE Volatility Index rose above 20 on Monday for the first time in four months, while the yield on the 10-year Treasury note hit a three-month low. Faber said he had been advising his readers to buy 10-year U.S. Treasurys over the last few months. He expects yields to rise as investors would seek a safe haven.
"For the next three to six months probably they are a better place to be than equities," he warned. "I don't like [10-year Treasurys] for the long-term because the maximum you can earn is something like 2.65 percent per annum for the next 10 years, but Treasurys are expected to rally because of economic weakness and a stock market decline. In the last few years at least there was a flight into quality – that is, a flight into Treasurys."
(Read more: Markets fear US chilled by more than weather)

Faber warned of the risks of the present global credit bubble and said another slowdown could follow on the back of rising consumer debt levels – which had previously helped to create growth.
"Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows."
- By CNBC's Holly Ellyatt, follow her on Twitter

if you are wondering why the euro is so strong, you are right.

read article below from CNBC

just how much qe is still in the pipeline even with tapering ongoing?

Rome, the next Detroit?

By: Jessica Morris, special to CNBC.com

Rome could be about to follow in the footsteps of bankrupt Detroit, after the country's new government scrapped a measure that would have helped with the Italian capital's budget deficit.
Italy's central government – under new Prime Minister Matteo Renzi – announced on Wednesday it would be dropping a bailout package designed to help plug city's gnawing €816 million ($1.17 billion) budget gap.
(Read more: Italy's new leader Renzi already in the soup)

Kevin Winter | Getty Images

Artisans and merchants gathered in Rome to demand that Parliament the new government in the midst of being formed make an urgent breakthrough in economic policy after the economic crisis shut down more than 372 000 businesses in 2013.

The move could bring Rome one step closer to a Detroit-style default.
Rome's mayor Ignazio Marino responded to the move by saying "In March there won't be money to pay 25,000 city employees, to pay for fuel for the buses, to keep the nurseries open, to collect rubbish or to organise that canonisation of the two popes, an event of a planetary scale" the Italian news agency ANSA reported on Thursday.
(Read more: Fears rise that Italy's 2014 budget could spark further trouble)
He also threatened to bring the city to a halt if the government failed to him answers – warning the ceremony for the canonisation of Popes John Paul II and John XXII on April 27 was at risk.
"I'll halt the city from Sunday … the politicians are lucky because they have chauffeur-driven cars, but the Romans won't be able to move around. People will have to fend for themselves" the local paper Gazetta del Sud reported.

Play Video

'Back to normal' in Italy

Virginie Maisonneuve, deputy CIO of PIMCO, says the political instability in Italy could provide a buying opportunity for investors.

The so-called "Save Rome" decree – which had been passed under the administration of Renzi's predecessor, Enrico Letta – has stirred up controversy in Italian politics.

It was obstructed by opposition parties such as the Northern League and anti-establishment 5-Star Movement (M5S) – and was in danger of not getting cabinet approval by the 28^th February deadline, according to reports by the Italian news agency ANSA.
Italy's new government – which was sworn in last Sunday --is currently working on another package of aid to provide basic funding for services, Marino said, according to the Italian news agency ANSA.
(Read more: Doubts over Renzi's 'ambitious' reforms for Italy)
And yet, wrangling over the aid package will divert resources from Renzi's pivotal package of reforms. Commentators have already highlighted concern as to the five-month time frame for his reform agenda.
The new prime minister has said he wants to overhaul the country's electoral system and constitution by the end of February before tackling labour reform in March and public administration and the fiscal system in April and May respectively.
Rome's budgetary concerns are set against a backdrop of economic trouble in Italy. Its economy grew for the first time in just over two years in the last quarter of 2013 according to Rome-based national statistics office Istat. But it still faces a worryingly high unemployment rate which rose to a record high of 12.9 percent in January.