Jeremy Grantham, co-founder of GMO LLC, has penned his most recent investor letter. As Seeking Alpha blogger Edward Harrison deftly puts it: "[the letter] is a cutting, snarling, and sarcastic rejection of the prevailing V-shaped recovery bull market view. But Grantham is far from ultra-bearish, giving a more nuanced and realistic assessment for the medium and longer-term."
Here are some major points from the market commentary section:
- Barring any massively stupid human mistakes, we are in for seven lean years.
- Corporate (ex-financials) profit margins will get slimmer.
- Today's markets -- as of Oct. 19 -- are 25% overpriced, and on a seven-year horizon they would move Grantham's normal forecast of 5.7% real growth down by more than 3% a year.
- Developed markets will grow at about 2.25% for the next "chunk of time." Emerging countries, meanwhile, will grow at twice that rate. Grantham also refers to an "emerging emerging bubble" -- or more, the emergence of an emerging market bubble, which Grantham suggests investors ride. "Riding a bubble up is a guilty pleasure totally denied to value managers who typically pay a high price to the God of Investment Discipline for being so painfully early."
- China might stumble in the next three years, which will present itself as an "important and unpleasant surprise of the fundamental economic variety."
Particularly entertaining, however, is Grantham's opening to the letter, which riffs on President Obama receiving the Nobel Peace Prize:
You know I can't tell you how surprised, even embarrassed I was to get the Nobel Prize in chemistry. Yes, I had passed the dreaded chemistry A-level for 18-year-olds back in England in 1958. But did they realize it was my third attempt? And, yes, I will take this honor as encouragement to do some serious thinking on the topic. I will also invest the award to help save the planet. Perhaps that was really the Nobel Committee's sneaky motive, since there are regrettably no green awards yet. Still, all in all, it didn't seem deserved. And then it occurred to me. Isn't that the point these days: that rewards do not at all reflect our just desserts? Let's review some of the more obvious examples.
Grantham goes on to award prizes to Ben Bernanke for "missing the unmissable"; "Misguided, sometimes idiotic mortgage borrowers"; "Over-spenders and undersavers";
"Banks too big to fail"; and "over-bonused financial types," among others.
Read the full letter here. - Sara Behunek
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Another rich guy who has had staffers laughing at his bad jokes for so long that he thinks he is actually clever.
The digs at the Obama award are devoid of substance and the award was given on facts, in 9 months he had started more efforts to de-escalate violence in several decades. That is what the award was for.
Now Grantham is used to dealing in economics, where there are no facts to know, just people to grease and arms to twist as the laws are broken in the guise of "financial innovation".