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Jeremy Grantham’s Quarterly Letter Summer 2010 at Trader’s Narrative





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Jeremy Grantham’s latest Quarterly Letter is divided into 6 essays dealing with a variety of diverse issues. You can read the whole letter below.

Grantham finally moved decisively into the deflation camp, joining other well known analysts like Robert Prechter and David Rosenberg. This is a point that we’ve been discussing for a while and had mentioned previously as the deciding factor in almost every single asset pricing question: The Ultimate Question: Deflation Or Inflation?

What stood out even more in this latest missive from Grantham was his reference to the probability branch he outlined in his April 2010 letter (Possible Race to the Old Highs). Back then he estimated the probability of a sustained economic recovery at 30%. Today he thinks a 25% is “generous”.

But the remaining paths describe the friction playing out in the equity markets, especially the question of a ‘Double Dip‘:

Well, what we are seeing now is a tussle between the 50% sustained speculation branch and the branch where two or three things go wrong and crack conīŦdence. This struggle is an unusual one, and has created market effects I have never seen before, and you have not either. This market might well be called a fearful, speculative market. Low rates, although they tend to produce a feeding frenzy at the aggressive end of institutional investors, merely produce a feeling in ordinary individual investors somewhere between dejection and desperation. They hate to park money in cash at negative real returns, and yet they are still thoroughly nervous, so surveys reveal, about normal equity investing. These investors did not need the recent slowing in growth and sovereign debt problems to become nervous.

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4 Responses to “Jeremy Grantham’s Quarterly Letter Summer 2010”  

  1. 1 PJ

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    One long letter, couldn’t even finish it.

  2. 2 PJ

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    Here is my take on low interest rates. A hidden tax on the common man. These ultra low rates while making it easier for corporate America and the Treasury (to borrow money to finance the deficit) doesn’t help the people that depend on a fixed income (interest from bank accounts or similar products).

    I have been searching for yield but am keeping in mind when you reach for yield you also risk principal. The stock market is just a game (hft, hedge funds, computerized trading). So this is not a means of investing in a company it is just as good as going to a casino. This will ultimately lead to the public to avoid investing in the market. We’ve witnessed this by the equity mutual outflows.

    As the population ages more of us will need income. You may see this in the bond fund inflow that we had.

    What to guage, what to believe? The consumer is only buying technology (apple items). Boats, cars, housing are not that great.

    The internet is the great deflation story, as far as what you buy everybody researches it and consumerism is here to stay. As far as inflation is concerned I’ve seen a small increase in my property insurance and car insurance. I can’t think of anything else.

    There you go my take.

  3. 3 Tony

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    I’m with you PJ..
    Interesting point, the last one about aging and pension future crisis… I’m not sure when it’s going to be, but I’m pretty sure it will be the last one

  4. 4 PJ

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    Thanks Tony,

    Even after Enron, our company’s match would only be in company stock. I was vocal to corporate about it but they never listened. I eventually wound up with 3 dollars as the company filed bankruptcy. It is amazing that most companies need laws to follow “best practices theory”.

    The 401 k is the biggest mirage on the American worker. Remember your dear old dad’s pension plan. You had professional management and hopefully a fully funded plan to boot.

    The 401k is not a great pension tool for an ordinary investor or a novice. The pensions that public employees receive will eventually be taxing for the taxpayer. I envision this to end soon and the introduction of a 403b will rule going forward.

    Going forward we need less financial engineers and more electrical and mechanical engineers in this country.

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