Wednesday, April 17, 2013

Jeremy Grantham Updates His Projections, Is Ultra-Bearish On US Stocks

Mr Grantham, of, 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...


  1. Not even tax-exempt bonds at this point. The yields have dropped like stones. In February I picked up some 10-years when they were over 2% but that's about it. I think Japan and Europe are going to scare money into the dollar and USTs but I'm fully positioned for the foreseeable future and have no plans to buy or sell much of anything for now. I just don't see anything worth buying.

    There's one area where I'm tempted to speculate: antimicrobial copper surfaces.

    As a physician you will probably understand the implications, given both the clinical and reimbursement aspects of hospital-acquired infections. In addition, there is potential implementation of copper surfaces in crowded living areas like dorms, barracks, and jails, restaurants and other food preparation areas, public lavatories, etc.

    I have seen almost NO coverage of this at all until recently

    I think we are going to see copper everywhere. This will be huge.

  2. I just had a hip revision and got one if those new silver bandages. Cool stuff! Not SE toxic as copper either.