Category Archives: Equities

10 QUICK TOPICS TO RUIN YOUR SUMMER Grantham

From  the GMO  Quarterly Letter

 1. Pressure on GDP growth in the U.S. and the balance of the developed world: count on 1.5% U.S. growth, not the old 3%

2. The age of plentiful, cheap resources is gone forever

3. Oil

4. Climate problems

5. Global food shortages

6. Income inequality

7. Trying to understand deficiencies in democracy and capitalism

8. Deficiencies in the Fed

9. Investment bubbles in a world that is, this time, interestingly different

10. Limitations of homo sapiens

 

GRANTHAM ON MARKETS HEADING TO BUBBLELAND

While markets across the globe “aren’t in a bubble yet”  legendary investor Jeremy Grantham, told investors at a Morningstar conference on June 25th  most stock markets in the world are overpriced — “and the bond market is more overpriced that at any time in history.”  To break the march toward what he termed Bubbleland  “we’ll have to wait until merger activity reaches “more of a frenzy” and individuals “become crazy buyers… But for now, individuals are buying a normal amount of shares, and no bubble has ever broken until individuals pour into the market.”

Grantham suggests the trigger needed to stop the markets’ steady rise won’t come from an interest-rate increase.By artificially depressing interest rates the Fed had made it “desperately appealing” for corporations to borrow cheaply to buy their own stock back,  noting that capital expenditures are “dismal.”

Though “everyone is in a state of hysteria” over the thought of an interest-rate increase it won’t derail the markets’ climb  or break the march toward what he termed bubbleland. “The market went up all the time without missing a beat when the Fed raised rates eight times from early 2004 to early 2006…Markets will likely plod higher until at least the Presidential election.”

WSJ note  “Mr. Grantham’s calls are widely watched in part because the firm’s money managers don’t have a reputation for being perma-bulls or perma-bears. He was early in predicting the financial crisis and then reversed course before markets started rebounding in 2009.”

 

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1: This website is not advisory. Opinions, comment and analysis are provided for information, are not intended as investment advice and may not be used as investment advice.

2: Investors seeking advice should retain the services of a regulated and qualified adviser.

3: Opinions expressed in comment on this site have short sell by dates and may have past their sell by date when they are read.

RATES MUST RISE TO AVERT NEXT CRISIS

 Scott Minerd,  Chairman of Investing and  Global CIO Guggenheim Partners writes:

“Policymakers have created a Wicksellian dilemma where investment spurred by low interest rates is driving economic growth, but these inefficient investments support growth at the expense of lower productivity in the economy.

“In 1898, Swedish economist Knut Wicksell argued that there existed a “natural” rate of interest that balanced the supply and demand of credit, assuring the appropriate allocation of saving and investment.

“Should market interest rates remain below the natural rate for an extended period, investors will borrow excessively, allocating capital into less productive investments, and ultimately into purely speculative ones…  LINK TO ARTICLE

 A version of this article first appeared in the Financial Times

DISCLAIMER ON INVESTMENT ADVICE

1: This website is not advisory. Opinions, comment and analysis are provided for information, are not intended as investment advice and may not be used as investment advice.

2: Investors seeking advice should retain the services of a regulated and qualified adviser.

3: Opinions expressed in comment on this site have short sell by dates and may have past their sell by date when they are read.