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Jeremy Grantham is out with his much anticipated Quarterly Letter and it's a good one. "Just Desserts and Markets Being Silly Again" 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.
He starts his letter with sarcastic allusion to Obama's Nobel Prize, titling the section "Just Desserts."
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.
But, he is just warming up, as he goes on to heap vitriol on 13 groups he feels are equally undeserving of rewards in a scathing condemnation of status quo ante in the economic and financial establishment.
They are:
This letter is a polemic against the financial elites of a ferocity the likes of which I have never seen from a major fund manager. I see it as a must-read.
As for the markets, he is not all doom and gloom. But the point that certainly jumped out at me was this:
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.
Translation: the market is so overvalued now that you should expect pretty meager long-term returns in equities. Does that mean a crash is right around the corner? Not necessarily "“ but a brutal correction is probably in the offing. Grantham says:
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 U.S. market will drop below fair value, which is a 22% decline (from the S&P 500 level of 1098 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.
The bottom line here is this: the market is significantly overvalued at present levels because of a technical rally super-charged by stimulus. This necessarily means lower returns over a longer-term horizon. The possibility of a major correction is high.
The full letter is embedded below with a lot more detail, market history and asset allocation recommendations.
Jeremy Grantham Third Quarter 2009 Letter
Hello there! If you are new here, you might want to subscribe via the RSS feed, E-mail or Twitter for updates on finance and economics.Related posts:More bullishness from Jeremy GranthamJeremy Grantham: Overheating in China, speculative rallies and fair valueJeremy Grantham: “Keep telling yourself… you're a long-term investor”Jeremy Grantham: “Many shares priced for… economic collapse”Jeremy Grantham: “Pull the trigger”
Category: Markets Tags: bear market investing, bond investing, bull market, investing, Jeremy Grantham, stocks« High yield is back in business in Europe « » Is Citi being forced to downsize by Obama? » thegrinder These stooges should be handed striped outfit with a sledge hammer forced to pound on some rocks for the rest of their lives. thegrinder He left out the Realwhores. Do not forget the realwhores.The realwhores still coming out with their questionabler predictions and info. thegrinder why can't the S&P trade down below 600?This is not even 1 times book.With this phoney money pumping up this artificial economy the day of reckening is near when the ponzi schems from the fed faikl to work. When this happens the wipeout hits. Then we get the long lasted multi decade correction needed to correct all this fraud! etfdesk1 I agree. In addition, Oil at these levels and potentially higher add to the headwinds. Let's see if Mr. Grantham is right. Track this call overtime....http://www.etfdesk.com/headline.aspx?hId=1384 blog comments powered by Disqus var disqus_url = 'http://www.creditwritedowns.com/2009/10/jeremy-grantham-the-market-is-25-overvalued-15-correction-coming.html '; var disqus_container_id = 'disqus_thread'; var facebookXdReceiverPath = 'http://www.creditwritedowns.com/wp-content/plugins/disqus-comment-system/xd_receiver.htm'; var DsqLocal = { 'trackbacks': [ ], 'trackback_url': 'http://www.creditwritedowns.com/2009/10/jeremy-grantham-the-market-is-25-overvalued-15-correction-coming.html/trackback' }; SubscribeSocial Media Readers who viewed this page, also viewedReaders who viewed this page, also viewed:Sell equitiesMore bullishness from Jeremy GranthamAboutWhy is Zero Hedge claiming the Fed is intervening in equities markets?The recession is over but the depression has just begunSearchLijit SearchAdvertisments sr_adspace_id = 3985607; sr_adspace_width = 300; sr_adspace_height = 250; sr_ad_new_window = true; sr_adspace_type = "graphic"; Archives Select Month October 2009 (133) September 2009 (106) August 2009 (93) July 2009 (172) June 2009 (113) May 2009 (135) April 2009 (129) March 2009 (179) February 2009 (141) January 2009 (128) December 2008 (117) November 2008 (99) October 2008 (198) September 2008 (162) August 2008 (147) July 2008 (214) June 2008 (220) May 2008 (119) April 2008 (78) March 2008 (40) Recent Posts Hayek: “I am not only against inflation but I am also against deflation.” A conversation with Stephen Roach on Charlie Rose Understand the Fed’s balance sheet Is Citi being forced to downsize by Obama? 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Jeremy Grantham is out with his much anticipated Quarterly Letter and it's a good one. "Just Desserts and Markets Being Silly Again" 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.
He starts his letter with sarcastic allusion to Obama's Nobel Prize, titling the section "Just Desserts."
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.
But, he is just warming up, as he goes on to heap vitriol on 13 groups he feels are equally undeserving of rewards in a scathing condemnation of status quo ante in the economic and financial establishment.
They are:
This letter is a polemic against the financial elites of a ferocity the likes of which I have never seen from a major fund manager. I see it as a must-read.
As for the markets, he is not all doom and gloom. But the point that certainly jumped out at me was this:
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.
Translation: the market is so overvalued now that you should expect pretty meager long-term returns in equities. Does that mean a crash is right around the corner? Not necessarily "“ but a brutal correction is probably in the offing. Grantham says:
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 U.S. market will drop below fair value, which is a 22% decline (from the S&P 500 level of 1098 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.
The bottom line here is this: the market is significantly overvalued at present levels because of a technical rally super-charged by stimulus. This necessarily means lower returns over a longer-term horizon. The possibility of a major correction is high.
The full letter is embedded below with a lot more detail, market history and asset allocation recommendations.
Jeremy Grantham Third Quarter 2009 Letter
Hello there! If you are new here, you might want to subscribe via the RSS feed, E-mail or Twitter for updates on finance and economics.Related posts:More bullishness from Jeremy GranthamJeremy Grantham: Overheating in China, speculative rallies and fair valueJeremy Grantham: “Keep telling yourself… you're a long-term investor”Jeremy Grantham: “Many shares priced for… economic collapse”Jeremy Grantham: “Pull the trigger”
Category: Markets Tags: bear market investing, bond investing, bull market, investing, Jeremy Grantham, stocks« High yield is back in business in Europe « » Is Citi being forced to downsize by Obama? » thegrinder These stooges should be handed striped outfit with a sledge hammer forced to pound on some rocks for the rest of their lives. thegrinder He left out the Realwhores. Do not forget the realwhores.The realwhores still coming out with their questionabler predictions and info. thegrinder why can't the S&P trade down below 600?This is not even 1 times book.With this phoney money pumping up this artificial economy the day of reckening is near when the ponzi schems from the fed faikl to work. When this happens the wipeout hits. Then we get the long lasted multi decade correction needed to correct all this fraud! etfdesk1 I agree. In addition, Oil at these levels and potentially higher add to the headwinds. Let's see if Mr. Grantham is right. Track this call overtime....http://www.etfdesk.com/headline.aspx?hId=1384 blog comments powered by Disqus var disqus_url = 'http://www.creditwritedowns.com/2009/10/jeremy-grantham-the-market-is-25-overvalued-15-correction-coming.html '; var disqus_container_id = 'disqus_thread'; var facebookXdReceiverPath = 'http://www.creditwritedowns.com/wp-content/plugins/disqus-comment-system/xd_receiver.htm'; var DsqLocal = { 'trackbacks': [ ], 'trackback_url': 'http://www.creditwritedowns.com/2009/10/jeremy-grantham-the-market-is-25-overvalued-15-correction-coming.html/trackback' }; SubscribeSocial Media Readers who viewed this page, also viewedReaders who viewed this page, also viewed:Sell equitiesMore bullishness from Jeremy GranthamAboutWhy is Zero Hedge claiming the Fed is intervening in equities markets?The recession is over but the depression has just begunSearchLijit SearchAdvertisments sr_adspace_id = 3985607; sr_adspace_width = 300; sr_adspace_height = 250; sr_ad_new_window = true; sr_adspace_type = "graphic"; Archives Select Month October 2009 (133) September 2009 (106) August 2009 (93) July 2009 (172) June 2009 (113) May 2009 (135) April 2009 (129) March 2009 (179) February 2009 (141) January 2009 (128) December 2008 (117) November 2008 (99) October 2008 (198) September 2008 (162) August 2008 (147) July 2008 (214) June 2008 (220) May 2008 (119) April 2008 (78) March 2008 (40) Recent Posts Hayek: “I am not only against inflation but I am also against deflation.” A conversation with Stephen Roach on Charlie Rose Understand the Fed’s balance sheet Is Citi being forced to downsize by Obama? Jeremy Grantham: The market is 25% overvalued; 15% correction coming High yield is back in business in Europe Why you won’t hear me using the word bankster News from around the web: 2009-10-26 WaMu: Mr. Smith goes to Washington and turns predatory Why is Zero Hedge claiming the Fed is intervening in equities markets? Recently Popular The latest bubble warning: Swedish house prices Obama: The one phrase he just can’t stop using Bill Gross: Sell equities and buy Treasuries Sell equities Julian Robertson: “We’re in for some real rough sledding” The recession is over but the depression has just begun Janet Tavakoli on fraud, derivatives, and bankruptcy Faber: Gloom, Boom or Doom? Steve Keen: On the Edge with Max Keiser Way too much risk in the equity market Most Viewed Credit Crisis TimelineLetterman’s Top 10 George Bush momentsSwitzerland threatened with bankruptcyIs the State of California bankrupt?The Dummy’s Guide to the US Banking CrisisMarc Faber: I advise every American to hold his gold outside of the United StatesTop ten predictions for the 2009 global economyChart of the day: Dow 1928-1932The Swedish banking crisis response – a model for the future?Quantitative easing: printing money like mad to ward off deflation Resources TranslateTranslate to:ArabicBulgarianCatalanChinese (Simplified)Chinese (Traditional)CroatianCzechDanishDutchEnglishFilipinoFinnishFrenchGermanGreekHebrewHindiIndonesianItalianJapaneseKoreanLatvianLithuanianNorwegianPolishPortugueseRomanianRussianSerbianSlovakSlovenianSpanishSwedishUkrainianVietnamese var thestr = window.location.href; var mystrlen = 31; var sresult = thestr.indexOf( "www.creditwritedowns.com" ); if( sresult == -1 || sresult >= mystrlen) { document.write( ' ' ); document.write( 'return to original' ); }else{ document.write( '' ); } Powered by Google Translate. PollsSorry, there are no polls available at the moment.Polls Archive sr_adspace_id = 3985507; sr_adspace_width = 160; sr_adspace_height = 600; sr_ad_new_window = true; sr_adspace_type = "graphic";Tagsbailout banking bankruptcy and foreclosure Barack Obama bond investing Britain business media capital markets China consumerism credit and credit cards deflation Democrats distraction economic depression economic indicators election Europe FDIC federal reserve finance financial bubbles financial crisis financial history financial leverage financial statements foreign exchange trading inflation economics interest rates investing jobs law and justice loans and lending market wizards mergers monetary policy mortgages oil Politics predictions presidential elections regulatory capitalism residential property stocks United States
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