Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co., said U.S. President Barack Obama’s bid to ban proprietary trading by banks is “good stuff” because it serves to rein in unethical behavior.
“Prop trading was indeed the rot at the heart of our financial problems,” Grantham, wrote in an investor letter posted yesterday on the firm’s Web site. “Watching traders take home their $28 million bonus sent a powerful message to lowly salesmen and packagers of asset-backed securities, for example, to get out there and really take some risk.”
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Grantham reiterated his forecast for “seven lean years” for the economy. The Standard & Poor’s 500 Index, which closed yesterday at 1096.78, is above what Grantham believes to be its fair value, of around 850.
“The real trap here, and a very old one at that, is to be seduced into buying equities because cash is so painful,” Grantham wrote in his letter. “Equity markets almost always peak when rates are low.”
Grantham's Quarterly Letter can be read here (registration required).
Why do I post this? Well, of all the market pundits I read-- and there are dozens that I do-- Grantham gets the big picture right, doesn't take extreme positions based on his forecasts, only makes forecasts based on the long term, AND HAS BEEN STUNNINGLY ACCURATE. See here. And here.
Can his methods fail? Of course. But who would you rather listen to (if listen you must)? Someone who never saw the crisis coming and failed to act or someone who was clearly warning of the excesses and made prudent changes? Grantham is an example of the latter.
I was stunned by the accuracy of his 10-year forecast results across the asset classes...as shown in his latest quarterely letter. Quite impressive!
ReplyDeleteGlenn_in_MA
Glenn-
ReplyDeleteI have been following Grantham for years. I believe his analyses are top notch. Critics have pointed to his call in 2003 of a "sucker's rally" as evidence that he is not always right. I have to laugh at that! 2003-07 was the biggest sucker's rally of all time. It ws built completely on sand. For proof look at the March 9, 2009 print at 666 on the SP500. We may be in another here. My sense is that the price low has been made (at 666) but we may see a valuation low sometime in the next 5 years that will pave the way for the next bull market. Either inflation or deflation will get us there. Price stability will only exist in government statistics.