Thursday, October 29, 2009

Jeremy Grantham GMO 3Q letter

GMO chief investment strategist, Jeremy Grantham is out with the firm's latest missive to investors; the GMO quarterly letter for 3Q 2009 is available at the GMO website and at Zero Hedge.

For a quick preview, here are some excerpts from Business Insider:

"
The idea behind my forecast six months ago was that regardless of the fundamentals, there would be a sharp rally [to S&P 1000-1100]. After a very large decline and a period of somewhat blind panic, it is simply the nature of the beast. Exhibit 1 shows my favorite example of a last hurrah after the first leg of the 1929 crash…


Today there has been so much more varied encouragement for a rally than existed in 1930. The higher prices preceding this crash (that were far above both trend and fair value) had lasted for many years; from 1996 through 2001 and from 2003 through mid-2008.
This time, we also saw history’s greatest stimulus program, desperate bailouts, and clear promises of years of low rates. As mentioned six months ago, in the third year of the Presidential Cycle, a tiny fraction of the current level of moral hazard and easy money has done its typically great job of driving equity markets and speculation higher.
In total, therefore, it should be no surprise to historians that this rally has handsomely beaten 46%, and would probably have done so whether the actual economic recovery was deemed a pleasant surprise or not.

Looking at previous “last hurrahs,” it should also have been expected that any rally this time would be tilted toward risk-taking and, the more stimulus and moral hazard, the bigger the tilt. I must say, though, that I never expected such an extreme tilt to risk-taking: it’s practically a cliff! Never mess with the Fed, I guess…
" Catch the full report at the links above. Should be an insightful read, as always.

Related articles and posts:

1. Jeremy Grantham: first TV interview - Finance Trends.

2. Seasoned investors search for value - Finance Trends.

3. Grantham profiles in Barron's, Financial Times - Finance Trends.