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Jeremy Grantham: “Markets Being Silly Again” at Trader’s Narrative

Jeremy Grantham declares most of the easy money made in his latest quarterly letter from GMO. I respect Grantham as one of the few ‘elder statesmen’ of the stock market because he approaches it with an impressive amount of perspective and discipline. No doubt, a result of having survived many market cycles.

He was one of the few who warned that the bubble was everywhere in 2007 and then surprising to many who were accustomed to his jeremiads against the market, he turned bullish in March 2009: Reinvesting When Terrified.

Here are a few choice excerpts from his latest missive on the US equity market:

Fair value on the S&P is now about 860 … This places today’s market at almost 25% overpriced

Having reinvested back in March to be almost neutral in equities, we have recently taken just a few chips off the table and recommend that anyone who was neutral weighted in equities or even overweighted (lucky you!) do the same.

Quality stocks (high, stable return and low debt) simply look cheap and have gotten painfully cheaper as the Fed beats investors into buying junk and other risky assets

GMO quarterly letter October 2009

As many have already done before him, Grantham compares the spring rally to the ‘last hurrah’ which saw the Dow Jones counter rally in the aftermath of the 1929 crash:

As mentioned six months ago, in the third year of the Presidential Cycle, a tiny fraction of the current level of moral hazard and easy money has done its typically great job of driving equity markets and speculation higher.

Price, however, 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 profi t margins as the quick fix of short-term labor cuts fades away. Second, the slow gravitational pull of value as U.S. stocks reach +30-35% overpricing in the face of an extended difficult environment.

But, like Doug Kass of Seabreeze Partners, Grantham doesn’t believe that we break the 666 low on the S&P 500 but that it will last as a long term inflection point. Turning to other markets, Grantham continues to favor emerging markets, even as their valuation pushes against his own value instinct. Finally, he finishes off with an special comment on the question of redesigning the financial system in the aftermath of the 2008 meltdown. The whole thing is longer than his usual quarterly updates but well worth the read.

Follow this link to download GMO latest quarterly letter. If that doesn’t work, you can also find it in the Free Trading Resource section in the Reports & Articles folder.

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It takes less than a minute to sign up and you need to provide some basic information. But as I mentioned, you need to be a resident of the US (because you need to provide a US address). Enjoy!

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6 Responses to “Jeremy Grantham: “Markets Being Silly Again””  

  1. 1 Mary Hunt

    Just “deserts?” Did you mean “desserts” as in the well-known cliche, “just desserts?” Deserts would be the Sahara the Mojave. If I am right and you meant the familiar “just desserts” as in apple pie, cake and cookies, then you misspelled it 14 times in your piece “Just Deserts (sic) and Markets Being Silly Again.”

    I read the entire piece and quite frankly if you meant the dry, arrid “desert” I do apologize. In that case the play on words was completely lost on me. I do hope I’m wrong and you are right, however. Fourteen misspells in one article would be some kind of record I’m sure.

  2. 2 Babak

    Mary, where do I even mention deserts/desserts even once above? did you confuse this post with another where I did, 14 times?

  3. 3 wayne

    Shame on you Babak for posting Grantham’s quarterly report where he misspelled dessert. I hope you realize the err in your ways. This Blog should be terminated immediately.

    Mary, do you know who Jeremy Grantham is? He called the banking crisis collapse two years before it occurred. He then got bullish early 2009. Has been as hot as anyone in the business the last 5 years. I hope Grantham loses sleep over his misuse of dessert and secondly I hope you don’t bother to read any of my post or I’m in big trouble.

  4. 4 Babak

    ruh roh, some peon at GMO is getting fired (14 times) — thanks to Mary

  5. 5 Irene

    Sorry Mary, but you’re incorrect. Just deserts is the phrase and Mr. Grantham is using it correctly. The meaning is to get what one deserves, hence just deserts. You can look it up.

    More important, Mr. Grantham got almost everything else correct.

  6. 6 Babak

    Thanks Irene, I learned something today. Guess no one’s getting fired at GMO ;)

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