Mr Grantham, of GMO.com, yesterday provided his 7-year estimates for different asset classes based on data from the end of March. He now gives US large cap and small cap stocks about a zero annual total return, including dividends, over this seven year span. This brings him to where John Hussman has been for a while, using lower stock market averages. But similar, indeed.
This appears reasonable to me, from a q and CAPE perspective and from looking at balance sheets.
Investors appear to have forgotten that financial asset value matters. It's not all about earnings.
Where Grantham is mildly optimistic still is that he has an undefined category that he calls "High quality US stocks". It's unclear which stocks these are. Are they stocks of high quality companies, many of which are at very high valuations? I'd be a bit skeptical that in a well-studied market, the average stock is poised to underperform a specified smallish group of equities by what comes out to 5% yearly (he assumes 2% price inflation).
His fundamental analysis thus is now in accord with my long-standing view that the average investor in taxable accounts should mostly just own tax-exempt bonds, which at least on a 7-year basis can return about the anticipated rate of CPI inflation.
In any case, with both interest rates and commodities in well-defined downtrends, and with gold's smash downward suggesting liquidity issues somewhere (eurozone/Cyprus?), the case for US stocks is weak perhaps for the next 6 months.
Stocks for the long run? Maybe the very long run...