Tuesday, October 14, 2008

Buying Too Soon? - Jeremy Grantham

"It’s bubble everywhere” said the Wall Street Legendary Investor, Jeremy Grantham, Chairman of institutional money manager GMO in Boston, Business Time dated 5th May 2007. He was recently interviewed by Barron's. Below is a summary of his views worth taking note:
  1. Great bubbles like that in 2000 take long time to wash through the system. Shouldn't really expect a low much before 2010.
  2. This was not only a monetary event, but it coincided with the first truly global bubble in all assets. You had inflated housing in almost every country in the world, except for Japan and Germany. You had overpriced stocks in every country in the world. And you had too much money and too-low interest rates. I was confident about very little, but I was confident that this would be different from anything we had seen before, and potentially more dangerous. It should have been treated with more care.
  3. But this is much worse than I thought. All the fundamentals are turning out worse than I thought they would.
  4. I changed my view from avoid all risk except emerging markets to avoid all risk, period.
  5. The terrible thing -- after all this pain -- is that the U.S. equity market is not even cheap. But it started from such a high level in 2000 that it still has not yet worked its way down to trend but getting close. The really bad news is that great bubbles in history always overcorrected. Although the fair value of the S&P today may be about 1025, typically bubbles overcorrect by quite a bit, possibly by 20%. That is very discouraging.
  6. The problem is that we have so much downside momentum, so many financial problems and so many interlocking relationships, that it is hard to imagine this crisis subsiding because stock prices are digging in their heels and approaching fair value.
  7. We had finished selling almost everything except emerging markets two years ago. We finished selling emerging-market equities three months ago. But the next move will be buying, and we are encouraged that there are a few pockets that are cheap on an absolute basis. We are not encouraged that they will rally immediately. But we will be looking to buy the cheap pockets of global equities as our next move some time in the next several months.
  8. You can buy, but it doesn't mean it is their low, and I strongly suspect it is not. The great trap is to buy too soon and, in the big move, to sell too soon. I've been saying since '98-'99 that my next major-league error will be buying too soon -- but we will not buy quite yet. But when we do, I suspect it will be too soon again.
  9. We are in a global slowdown, which I think will be worse than expected even today, and it will be longer than expected -- so this is not a healthy environment for commodities. Over a shorter horizon, I would be getting out of the way of commodities or I would be short commodities. I'm personally short oil; the firm is short copper.

Hmm..I'm going monitor his future views closely, make it a benchmark for my forecast! Follow the real Smart Money!

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