Posts Tagged ‘Jeremy Grantham’
Jeremy Grantham: Lessons Learned From the Past Decade
Tuesday, January 26th, 2010
Jeremy Grantham has become a familiar and very popular face on this site. For those treasuring his insight, wisdom and prescient calls, the co-founder and chairman of Boston-based GMO has just published the Q4 edition of his quarterly newsletter entitled “What a decade!”.
Grantham’s letter begins with a short addendum (”Stop the Presses!”), which addresses two newsworthy items, namely “Volckerization” and the scrapping of the limit of the money corporations spend to influence political outcomes.
“What a Decade!” follows, providing Grantham’s thoughts on the past decade including the following list of lessons learned:
• The Fed wields even more financial influence than we thought.
• Low rates have a more powerful effect on driving financial assets than on driving the economy.
• The Fed is capable of being extremely out of touch with the real world - “What housing bubble?” - plus more doctrinaire - “No, the low rates had no effect on housing” - than anyone could have imagined.
• Congress is nearly dysfunctional, primarily controlled by large corporations, and hamstrung by the supermajority now routinely required in the Senate.
• Government administrations can be incompetent for long periods.
• Poor leadership can really damage a country’s hard-won reputation in a mere 10 years.
• Obama is not a miracle worker!
• The leadership of major corporations can be very lacking in insight and competence on a fairly routine basis.
• The two time-tested investment tools, value (P/E ratios and P/B ratios) and price momentum, are now much more heavily used and not so reliable as they once were, say from 1977 to 1997.
• Asset classes really are more inefficiently priced than individual stocks on average, and therefore offer greater opportunities for adding value and reducing risk.
• Developed countries, including the US, are past their prime compared with developing countries: it is indeed a new world order.
• Education and training are the keys to increasing wealth on a sustainable basis and the US is in danger of losing its once large edge here.
• We all live on an island, which can be overexploited and turned into a barren Easter Island if we are not careful. Resources are finite and biodiversity is fragile, and both must be protected. Carbon emissions are the single greatest threat.
• Being a global policeman is expensive, and somewhere between difficult and impossible.
• The Fed learns no lessons!
The Appendix to the report is a summary of Grantham’s part in a debate entitled “Financial Innovation Boosts Economic Growth”, sponsored by The Economist. The video of the debate follows below.
Click here for Grantham’s full report.
Source: Jeremy Grantham, GMO, January 2010.
Tags: Asset Classes, Co Founder, Competence, Developed Countries, Developing Countries, Financial Assets, Gmo, Housing Bubble, Investment Tools, Jeremy Grantham, Large Corporations, Long Periods, Miracle Worker, Political Outcomes, Poor Leadership, Price Momentum, Quarterly Newsletter, Ratios, Routine Basis, Supermajority
Posted in Markets | No Comments »
Jeremy Grantham: “Fair value on the S&P is 860″
Tuesday, October 27th, 2009
Jeremy Grantham has become a familiar and very popular face on this site. For those treasuring his insight, wisdom and prescient calls, the co-founder and chief investment strategist of Boston-based GMO has just published the October edition of his quarterly newsletter entitled “Just desserts and markets being silly again”.
Before quoting from the report, Grantham recently put matters into perspective in a Kiplinger article, saying: “The recent rally has been very speculative, favoring risky assets over the past few months. I’m sorry if you missed investing at the market’s March lows, but don’t compound the damage to your portfolio by chasing gains in risky assets. We’re at the beginning of a seven-year period of lean returns. You should only be buying the highest-quality blue-chip companies, where valuations are most attractive.”
Here are a few excerpts from the Grantham’s newsletter.
“Corporate ex-financials profit margins remain above average and, if I am right about the coming seven lean years, we will soon enough look back nostalgically at such high profits. Price/earnings ratios, adjusted for even normal margins, are also significantly above fair value after the rally. Fair value on the S&P is now about 860 (fair value has declined steadily as the accounting smoke clears from the wreckage and there are still, perhaps, some smoldering embers). This places today’s market (October 19) at almost 25% overpriced, and on a seven-year horizon would move our normal forecast of 5.7% real down by more than 3% a year. Doesn’t it seem odd that we would be measurably overpriced once again, given that we face a seven-year future that almost everyone agrees will be tougher than normal?
“Price … does matter eventually, and what will stop this market (my blind guess is in the first few months of next year) is a combination of two factors. First, the disappointing economic and financial data that will begin to show the intractably long-term nature of some of our problems, particularly pressure on profit margins as the quick fix of short-term labor cuts fades away. Second, the slow gravitational pull of value as US stocks reach +30-35% overpricing in the face of an extended difficult environment.
“It is hard for me to see what will stop the charge to risk-taking this year. With the near universality of the feeling of being left behind in reinvesting, it is nerve-wracking for us prudent investors to contemplate the odds of the market rushing past my earlier prediction of 1,100. It can certainly happen. Conversely, I have some modest hopes for a collective sensible resistance to the current Fed plot to have us all borrow and speculate again. I would still guess (a well-informed guess, I hope) that before next year is out, the market will drop painfully from current levels. ‘Painfully’ is arbitrarily deemed by me to start at -15%. My guess, though, is that the US market will drop below fair value, which is a 22% decline (from the S&P 500 level of 1,098 on October 19).
“Unlike the really tough bears, though, I see no need for a new low. I think the history books will be happy enough with the 666 of last February.”
Click here for the full report on Grantham’s reasoning for his cautious stance.
Source: Jeremy Grantham, GMO, October 2009.
Tags: Chief Investment Strategist, Co Founder, Desserts, Excerpts, Gmo, Guess, Horizon, Jeremy Grantham, Lean Years, Lows, October 19, Panies, Price Earnings Ratios, Profit Margins, Quarterly Newsletter, Rally, Risky Assets, S Market, Valuations, Wreckage
Posted in Markets | No Comments »
Stock Markets - What to do now
Thursday, September 3rd, 2009
Risk aversion has re-entered the investment equation with risky assets such as equities and commodities bearing the brunt of the selling orders, while gold bullion, government bonds, the US dollar and the yen are attracting safe-haven money.
The global stock market pullback seems to be gathering momentum with three markets on my radar screen now trading below their 50-day moving averages, indicating a reversal of the secondary trend. These markets are China, Hong Kong and Chile, with most others uncomfortably close to this intermediate support level (see table below). I am of the opinion that more markets will fall below the 50-day lines and that we will at least see some degree of reversion to the key 200-day moving averages (often used to distinguish between primary bull and bear markets). The table provides the key levels, as well as the declines since the recent highs.
Click here or on the table below for a larger image.
For some ideas regarding the short-term direction of the Nasdaq Composite Index, Adam Hewison’s short technical analysis (INO.com) provides valuable insight. Click here to access the presentation.
It was interesting to catch up on the views of Albert Edwards, global strategist of Société Générale, in yesterday’s Financial Times. Donning his familiar bearish colors, he said: “Once again, equity participants are missing the big picture. For despite clear signs from the business surveys of some sort of second half recovery, firm evidence is emerging that the global economy is sliding towards a full-blown deflationary episode once this recovery falters.
“We heartily concur with GMO’s Jeremy Grantham who remarked recently that after 20 years of more or less permanent overvaluation of US equities, we saw just five months of under-pricing through the March trough. Do bursting global equity valuation bubbles really end like this? Of course they don’t.”
Doug Kass of Seabreeze Partners and a columnist at TheStreet.com, who accurately called the March bottom, is also now outright bearish, as discussed here with CNBC’s Larry Kudlow.
Source: CNBC, September 1, 2009.
According to Kass (via TheStreet.com), one should now do the following seven things:
1. Build up cash reserves by reducing exposure to equities and credit.
2. Upgrade one’s portfolio to quality. Eliminate secondary and tertiary stocks that have benefited the most from the second derivative and statistical economic recovery.
3. Longs: Concentrate on market-share-gaining multinationals that are self-financing, that do not rely on the kindness of strangers to fund growth and that will benefit from a lower US dollar.
4. Shorts: Consider shorting stocks that are levered to the capital markets and the consumer - for instance, brokers, asset managers and retail-related stocks.
5. Err on the side of conservatism over the balance of the year, and recognize that, at times, it’s more important to place a priority on limiting the potential loss on capital above the possibility of sacrificing lost investment/trading opportunities.
6. Reread the books written by the old masters of trading, investing and even poker in order to gain a greater investment perspective. One should always try to learn more, and one can from George Soros, Jim Cramer, Barton Biggs, Jim Grant, Charles Mackay, Rich Bernstein, Doyle Brunson and others who have written of their experiences.
7. Gain or regain a better balance in one’s life. Whether it’s gardening, exercising, vacationing, going to sporting events or reading, it’s important to clear one’s head, step back a bit and gain a better perspective — it’s healthy food for the body and mind.
Kass concludes: “I believe that, similar to back in March 2009, we may now be at a fulcrum point in the US stock market. It is, again, time for a variant market view. My advice is to reduce your risk profile by raising cash, upgrading the quality of your trading/investing portfolio, chill out a bit, read some books and words of advice from the best there is/was and, generally, to err on the side of conservatism in the months ahead.”
Be cautious out there!
Tags: Bull And Bear, Business Surveys, China Hong Kong, Commodities, Doug Kass, Equity Participants, Equity Valuation, Global Stock Market, Global Strategist, Gold, Gold Bullion, Government Bonds, Investment Equation, Jeremy Grantham, Moving Averages, Nasdaq Composite Index, Radar Screen, Risk Aversion, Risky Assets, Seabreeze Partners, Term Direction, Thestreet Com
Posted in Emerging Markets, Gold, Markets | 1 Comment »
Jeremy Grantham: Prepare for Low Growth, Higher Energy Prices
Monday, July 27th, 2009
Jeremy Grantham has released his latest newsletter, “Boring, Fair Price.” Grantham’s newsletter is a must read, given that he has made some of the most noteworthy and canny calls of the last decade. Grantham called the tech bust, accurately predicted 10 years out, the S&P 500 would revert to a fair value of 950 last fall, give or take a few days, and exited emerging markets last summer. In early March, his letter, presciently titled “Reinvesting when Terrified,” was released the day the market turned around.
Here, Grantham writes how he has bitten hard on the energy transition apple, a theme we have covered a great deal throughout the year, and goes to some, but not too much length to explain that higher energy prices loom, and what their impact will be on agriculture and transportation, and how oil will eventually flow (only) to its first and best uses. This one will be near and dear to Canadian investors.
Click the button in the top right corner to full screen the viewer, and use the menu on the left hand topside to print. Or, you may download it here.
Tags: 10 Years, Agriculture, Amp, Apple, Bust, Canada, Canadian Investors, Click The Button, Emerging Markets, Energy Prices, Energy Transition, Few Days, Gmo, Higher Energy, Jeremy Grantham, Last Decade, Left Hand, Low Energy, Newsletter, oil, Q2, Top Right Corner
Posted in Emerging Markets, Markets | No Comments »
Are Markets Efficient?
Monday, June 8th, 2009
No, says Jeremy Grantham. In a New York Times article, Poking Holes in a Theory on Markets, by Joe Nocera
“In their desire for mathematical order and elegant models,” he wrote in his firm’s quarterly letter to clients earlier this year, “the economic establishment played down the role of bad behavior” — not to mention “flat-out bursts of irrationality.”
He continued: “The incredibly inaccurate efficient market theory was believed in totality by many of our financial leaders, and believed in part by almost all. It left our economic and government establishment sitting by confidently, even as a lethally dangerous combination of asset bubbles, lax controls, pernicious incentives and wickedly complicated instruments led to our current plight. ‘Surely, none of this could be happening in a rational, efficient world,’ they seemed to be thinking. And the absolutely worst part of this belief set was that it led to a chronic underestimation of the dangers of asset bubbles breaking.”
Grantham goes further, pointing out that there have been many glaring examples of market behaviour which call efficient market theory into question:
“There are incredible aberrations,” he told me over lunch not long ago. “The U.S. housing market in 2007. Japan in the 1980s. Nasdaq. In 2000, growth stocks were three times their fair value. We were quoted in The Economist in 2000 saying that the Nasdaq would drop by 75 percent. In an efficient world, you wouldn’t have that in a lifetime. If the market were truly efficient, it would mean that growth stocks had become permanently more valuable.”
As Mr. Grantham sees it, if professional investors had been willing to acknowledge these aberrations — and trade on the fact that the market was out of whack — they should have been able to beat the market. But thanks to the efficient market hypothesis, no one was willing to call a bubble a bubble — because, after all, stock prices were rational.
“It helped mold the ‘this time it’s different’ mentality,” he said. Indeed, professional money managers who tried to buck the tide wound up losing their jobs — because everybody else was making money by riding the bubble for all it was worth. Meanwhile, government officials, starting with Alan Greenspan, were unwilling to burst the bubble precisely because they were unwilling to even judge that it was a bubble. “Our default reflex is that the world knows what it is doing, and that is extravagant nonsense,” Mr. Grantham said.
Read the complete article here.
Tags: Aberrations, Bad Behavior, Dangerous Combination, Economic Establishment, Efficient Market Hypothesis, Efficient Market Theory, Elegant Models, Financial Leaders, Glaring Examples, Government Establishment, Growth Stocks, Irrationality, Jeremy Grantham, Joe Nocera, Market Behaviour, New York Times, Professional Investors, Quarterly Letter, Stock Prices, York Times Article
Posted in Markets | No Comments »
Jeremy Grantham’s Morningstar Interview (5/28/09)
Sunday, June 7th, 2009
Jeremy Grantham, Chief Investment Officer, and founder of $150-billion Boston-based asset manager, GMO gives Morningstar an eloquent and quietly gripping interview. As usual, the super-modest, irrepressibly shy, Grantham, struggles to look up at Morningstar’s Pat Dorsey, and for that matter the camera. What comes through instead is the soft-spoken, and truly understated genius, known for his prescient calls on the market.
These are not to be missed.
Below are the videos of Jeremy Grantham as he was interviewed by Morningstar:
Part 1:
What to do if you missed the rally, and its durability.
http://www.morningstar.com/cover/videocenter.aspx?id=295077
Part II. Quality stocks will trump junk.
http://www.morningstar.com/cover/videocenter.aspx?id=295076
Part III: Seven lean years will follow…
http://www.morningstar.com/cover/videocenter.aspx?id=295072
Part IV: Growth stocks simply do not beat value stocks;
Fast growing countries do not necessarily outperform slow growing countries;
Top line growth almost does not matter.
Value matters in everything.
http://www.morningstar.com/cover/videocenter.aspx?id=295075
Part V. Grantham’s greatest concern is for inflation
http://www.morningstar.com/cover/videocenter.aspx?id=295073
Tags: Asset Manager, Boston, Cambria, Chief Investment Officer, Countries, Durability, Font Definitions, Font Format, Genius, Gmo, Growth Stocks, inflation, Jeremy Grantham, Lean Years, Morningstar, Mso, Orphan, Panose, Pat Dorsey, Pitch, Props, Quality Stocks, Rally, Serif, Style Definitions, Style Type, Text Decoration, Theme Font, Times New Roman, Value Matters, Value Stocks, Videos
Posted in Markets | No Comments »
Why Jeremy Grantham Changed His Mind
Thursday, May 28th, 2009
The opinions of Jeremy Grantham, veteran investor and founder of Boston-based money-management firm GMO, have been featured regularly in posts on the Investment Postcards blog. Against the background of his general disregard for conventional wisdom, his turnaround in early March from a perma-bearish stance to a more bullish demeanour was particularly closely followed.
“… be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle less black than the day before,” he said in March in a newsletter entitled “Reinvesting when terrified“. He also cautioned investors not to fall prey to “terminal paralysis” that often sets in after a financial crisis.
A recent interview by SmartMoney with Grantham provides insight on why he has changed his mind and his prognosis for the future. A few excerpts from the interview are shared below.
SmartMoney: In 2007 you were worried the global financial market could fall apart, and you said a market downturn was probably coming. Okay, say it: “I told you so.”
Jeremy Grantham: That seems so long ago. I felt like saying that a few months ago, but now onward and upward, and wait for the next unexpected twist.
SM: Why were you so certain things were going to get so ugly?
G: There wasn’t a whole lot of doubt where I was coming from. I thought the fair value of the S&P was 925; the S&P went to 1500. And by 2006 the housing bubble was at a 100-year peak. This was the 32nd asset bubble that we’ve tracked, and all but the U.K. housing bubble have popped.
SM: … for the first time in years, you like US stocks.
JG: We think a fair price for the S&P 500 index is 900. By sheer divine intervention we bought into the market on Mar. 6, the day it hit the recent low of 666. It’s likely, but far from certain, that we’ll go back and make a new low. You aren’t going to get to buy at the absolute low unless you have a time machine.
SM: Anything else besides US stocks?
JG: US stocks were nicely cheap, and frankly, the rest of the world was even cheaper. In early March, when we bought, we invested only in stocks we thought would have a 10 to 14 percent average annual return after inflation. That’s magnificent. We haven’t seen anything like that in 20 years. It was somewhat disappointing that prices moved up so fast in just a couple of weeks. The odds are a bit more than 50-50 that we will go back and test that low.
SM: So you’ve made a quick buck. Now what?
JG: You have a set of possibilities. First, if the market nosedives, it’s easy: You buy. The second is confusing, when the market just goes sideways, between 700 and 800. The market is irritatingly cheap then, but not super cheap. The longer that goes on, the less probability we will set a new low, so we’ll ultimately put money each month into the market.
SM: What if stocks keep rallying?
JG: If the market goes higher, above 950, and then starts moving sideways, between 950 and 1050, we probably do very little. Then the market is moderately overpriced.
SM: Over the long haul, is there any particular industry or sector you like?
JG: The people who move quickly in this market can make money. The people who invest in energy alternatives will make more. Alternative energies and combating climate change are the single most important economic initiatives over the next 10 years-really over the next 50 years. It will be a very exciting next 50 years.
SM: Will we get out of this mess?
JG: The stimulus is so great in the United States, China and the United Kingdom, it will kick the economy up. GDP will go back positive for two to three quarters. They’ll assume everything is settled, that throwing money at it has worked. But the long-term imbalance between overproducers [like China] and overspenders [like the US] will continue. It’ll be a multiyear drag on growth.
SM: We’re just throwing money at the problems?
JG: If the problem is that we consume too much and borrow too much, does it make sense to borrow more and spend more? It doesn’t make sense to solve alcoholism by giving an alcoholic a quart of whiskey, but everyone believes that we must stimulate. So that’s why we feel this is a temporary cure. This is like when you revive the drunk, he staggers down a few blocks, then falls down again.
SM: That does not sound promising.
JG: We’re not rich, and we’re undersaved and underpensioned. Those will be a real brake on economic growth. This will be a pretty long recovery period, longer than we’re used to, but hopefully not as long as Japan took. It will not be as long as the Depression, but it will be several years, and not just two. Lord knows we have had several fat years.
Source: Russell Pearlman and Jonathan Dahl, SmartMoney, May 21, 2009.
Tags: Conventional Wisdom, Demeanour, Disregard, Divine Intervention, Excerpts, Financial Crisis, Global Financial Market, Gmo, Housing Bubble, Jeremy Grantham, Light At The End Of The Tunnel, Market Downturn, Money Management Firm, Paralysis, Prey, Prognosis, Smartmoney, Time Machine, Turnaround, Unexpected Twist, Whole Lot
Posted in Markets | No Comments »
David Swensen Interview (May 22, 2009)
Wednesday, May 27th, 2009
David Swensen, legendary CIO of the Yale Endowment appeared in a full length interview on Consuelo Mack’s Wealthtrack on May 22. 2009. In it, he discusses among other things, his updated recommendations for individual investors. Swensen reminds us of Jeremy Grantham, a dedicated practitioner who could care less about the investment spotlight, and would most likely prefer to be left alone to do what he loves best. Investing.
Click play to watch. For a transcript of Part 1, click here.
This is an enlightening interview, as Swensen shares his candid views on investing, and what is required for investment success.
Here are Swensen’s recommendations for individual investors. Canadian investors may want to substitute for the Canada equity bias on the US stocks allocation. Substitute for Canada Bonds and Canada Real Return Bonds to reduce the currency risk.
30% US stocks
15% treasury bonds
15% TIPS
now 15% REITs
15% foreign developed equities
now 10% emerging markets
Swensen has reduced the REITs allocation by 5% and raised the Emerging Markets allocation from 5% to 10%. By the way, Swensen made these long view asset allocation adjustments at the beginning of the year, and not last week, so given that emerging markets are outperforming G7 country equity markets, his call early in the year, to individual investors, to overweight them was reliable.
Swensen remarked that diversification fails during crises - it did in 1987, 1998 and last year. He also discusses the idea that while he is religiously a bottom-up investor, crises force you to look at top-down considerations.
This is a must see interview and Swensen provides much food for thought in this meaty interview.
Tags: Active Management, Asset Allocation, Asset Classes, Canada, Canada Bonds, Canada Equity, Canadian Investors, Candid Views, capitalism, Consuelo Mack, Currency Risk, David Swensen, Diversification, Emerging Markets, Endowments, Etps, Financial Crisis, Food For Thought, Hedge Funds, Individual Investors, Investment Horizon, Investment Success, Jeremy Grantham, Length Interview, Long Periods Of Time, Real Return Bonds, Reits, Roger Nusbaum, Some Critical Remarks, Stocks Bonds, Treasuries, Treasury Bonds, Wealthtrack, Yale Endowment
Posted in Emerging Markets, Markets | No Comments »
Jeffrey Saut: Long Emerging Markets and Raw Materials
Tuesday, May 12th, 2009
Raymond James’ chief investment strategist, Jeffrey Saut, has published his newsletter of May 11, 2009, in which he posits a discussion on investing in emerging and frontier markets and raw materials, and corroborates his thoughts with those of Thomas Melendez from MFS, and Jeremy Grantham, GMO.
You may read, as well as print, this weeks entire letter in the slidedeck below by clicking on the ‘full screen’ radio button at the top right hand of the frame.
You can download the entire document here.
Jeffrey Saut’s Bio:
Jeffrey Saut is Chief Investment Strategist and Managing Director of Equity Research at Raymond James & Associates.
Mr. Saut began his career on a trading desk in New York City. In 1973, he joined E.F . Hutton, where he began following equities and writing research. He subsequently worked as a securities analyst for Wheat First Securities, and then Branch Cabell, where he ran the equity research group as director of research and acted as portfolio manager for the firm’s affiliate, Exeter Capital Management. As director of research, he built the research and institutional sales departments for the regional brokerage firm Ferris, Baker and Watts, Inc. and subsequently Sterne, Agee & Leach, Inc.
Mr. Saut is well known for his insightful and colorful commentary regarding the stock market, and he makes regular media appearances.
Hat tip: Marketfolly.com
Tags: Add new tag, Array, Branch Cabell, Brokerage Firm, Chief Investment Strategist, Colorful Commentary, Director Of Research, E F Hutton, Emerging Markets, Equity Research, ETF, Ferris Baker, Frontier Markets, Hat Tip, Institutional Sales, James Jeffrey, jeffrey saut, Jeremy Grantham, Media Appearances, Radio Button, Raymond James, Raymond James Associates, Regional Brokerage, Securities Analyst, Sterne Agee, Sterne Agee Leach, Writing Research
Posted in Commodities, Economy, Emerging Markets, Markets, Outlook | No Comments »
Jeremy Grantham: The last hurrah and seven lean years
Thursday, May 7th, 2009
Jeremy Grantham’s keenly awaited quarterly newsletter, entitled “The last hurrah and seven lean years”, has just been published. Grantham, who co-founded Boston-based GMO in 1977, covers a lot of thought-provoking ground in this letter, but focuses mostly on where to invest now.
The widely-respected Grantham’s newsletter is must-read material. The first few paragraphs are published below and a link to the full article is provided at the bottom of the post.
“First, let me lament the loss of near certainties in investing. The financial and economic collapse that I described as ‘the most widely predicted surprise in the history of finance’ about 18 months ago is behind us. More precisely, we believed that bubbles had formed in global profit margins, risk premiums, and U.S. and U.K. housing prices, and that all three were ‘near certainties’ to break, with severe consequences for the economic and financial system. All have thoroughly burst and are in their over correction phase with the single exception of U.K. house prices, which I’m confident will do their duty. Normally there are, of course, no near certainties in investing.
“Life is not meant to be that easy. Asset allocators have been blessed in the last 10 years with a large collection of extraordinary outliers. As my favorite quote by Mandelbrot (1983) says, ‘Even though economics is a very old subject, it has not truly come to grips with the main difficulty, which is the inordinate practical importance of a few extreme events.’ If this last 10 years did not prove him right, nothing will.
“Since 1988, we have been offered 8 or 10 2-sigma events. (A 2-sigma event is our definition of an important bubble or bust.) All of these events were bubbles, and all behaved themselves by bursting. Now, sadly, there are probably none.
“Government bonds are the one serious candidate. In our opinion, they are badly overpriced but probably not by enough to justify the bubble title. Global equity markets are still cheap, but in major markets are nowhere near 2-sigma, 40-year bust levels. Some smallscale 2-sigma bargains may exist in the fi xed income markets in rate differentials, but need skillful analysis and knowledge to disentangle from value traps. And, they are a very far cry from, say, the opportunities offered by buying credit default swaps at a handful of basis points on overleveraged financials in early 2007. So, all in all, welcome back to the age of guesswork.”
Click here for the full report.
Source: Jeremy Grantham, GMO, May 2009.
Tags: Asset Allocators, Bubb, Bubbles, Certainties, Correction Phase, Economic Collapse, Extreme Events, Favorite Quote, Gmo, Government Bonds, House Prices, Jeremy Grantham, Lament, Lean Years, Mandelbrot, Outliers, Paragraphs, Profit Margins, Quarterly Newsletter, Risk Premiums
Posted in Markets | No Comments »
Jeremy Grantham: Beware of terminal paralysis
Thursday, February 26th, 2009
As the stock market indices are flirting with key charting levels and we are waiting for Mr Market to show his hand, it is useful to get an update on the outlook from Jeremy Grantham.
Grantham, chairman of Boston-based GMO, was a great skeptic between 1999 and October last year when he started propagating “hesitant and careful buying”. His latest thinking has just been reported in an interview with CNN Money as quoted below.
“Meanwhile, GMO chairman Jeremy Grantham is more upbeat - though he does expect more pain to precede any recovery.
“Looking back at historic bear markets, Grantham draws comparisons to 1974 and 1982, when the S&P 500 lost roughly half its value. Since he estimates the current S&P 500 fair value at 900, Grantham puts his worst-case bottom at a hair-raising 450.
“‘That’s fairly scary, but on the one hand we look at the massive stimulus, and then on the other we try to work out the fact that the global economy is in worse shape than it was in ‘74 or ‘82,’ says Grantham. ‘I’d say there are three-to-one odds that we go to a material new low. We should count on [the S&P 500] hitting 600 for a little while, and we should hope like mad it doesn’t get deep into the 500s.’
“Patience rules. Another looming threat is that the market may enter an extended period of drops and rebounds that flatten long-term returns and strand buy-and-hold investors for decades.
“Japan’s stalled stock market is one recent example, but the U.S. has had its shares of quagmires, too. Grantham likes to point out that investors who bought at market crests in 1929 and 1965 had to wait 19 years each time just to break even.
“Still, Grantham says buy-and-hold still makes sense for long-term investors when stocks are trading below fair value. He especially favors U.S. blue chips, and his fund is on a strict, slow schedule to invest as valuations dip even lower.
“‘If you don’t have a schedule for investing, you will not do it,” he says. “When the market goes down, it reinforces the hoarding of cash. By the bottom, you suffer what we called in 1974 terminal paralysis - you cannot pull the trigger. Almost everyone who avoids the great pain is very slow to get back.’
Source: Eugenia Levenson, CNN Money, February 25, 2009 (hat tip: Investorazzi).
Tags: 19 Years, Bear Markets, Blue Chips, Cnn, Cnn Money, Crests, Global Economy, Gmo, Jeremy Grantham, Paralysis, Patience, Quagmires, Rebounds, Skeptic, Stimulus, Stock Market Indices, Term Investors, Valuations, Worst Case
Posted in Economy, Markets, Outlook | No Comments »
Top 15 Articles on GreenLightAdvisor.com
Saturday, February 14th, 2009
Happy St. Valentine’s Day!
Here is a listing of the 15 most popular articles (ranked according to # of views) published at GreenLightAdvisor.com during the last 2 months:
Popular GreenLightAdvisor.com Articles:
- Jim Rogers: Outlook for 2009
- Warren Buffett Interview (01/19/2009)
- Donald Coxe: Have Commodities Started to Outperform?
- Bill Gross, Investment Outlook, December 2008
- Byron Wien: Ten Surprises for 2009
- Sprott: “So you think 2008 was bad?”
- Setting the Bull Trap
- Donald Coxe on BNN (12/12/2008)
- 20 Surprises for 2009: Doug Kass
- Buffett’s Metric says its time to buy
- George Soros: The New Paradigm For Financial Markets
- Is Wall Street Responsible for 2008’s Oil Bubble?
- Bill Gross: Investment Commentary (Jan. 2009)
- Stock Markets: Is This It?
- Jeremy Grantham: Riveting Interview
Tags: Bill Gross, Bnn, Commodities, Donald Coxe, Doug Kass, Financial Markets, George Soros, Gross Investment, Investment Commentary, Investment Outlook, Jeremy Grantham, Jim Rogers, Metric, New Paradigm, Sprott, St Valentine, Stock Markets, Surprises, Valentine S Day, Wall Street, Warren Buffett
Posted in Commodities, Markets, Oil and Gas, Outlook | No Comments »
