The Last Hurrah -Grantham

[stockman]

GMO Grantham 050909.pdf

"One reason I am parting company with many of my
bearish allies for a while is my familiarity with the
Presidential Cycle and, critically, what it has taught us
about the power of stimulus and moral hazard to move
the stock market many multiples of their modest effects
on the real economy. These lessons seem to me to be particularly relevant today."

"So by analogy to the normal Presidential Cycle effect,

driven by stimulus and moral hazard, we are likely to have a remarkable stock rally, far in excess of anything justi

fied by either long-term or short-term economic fundamentals.

My guess is that the S&P 500 is quite likely to run for a

while, way beyond fair value (880 on our revised data),
to the 1000-1100 level or so before the end of the year."

I've been thinking 1100-1200... about the mid point of stock prices for the last 10 years and recovery from the 'free fall'. If our goal is to inflate asset prices (as Irving Fisher suggest) back to the average price when the debt was created this seems reasonable to me. Of course they'll need home prices to rise as well... and if that takes longer then stocks could over shoot.

[phirang]

Re: The Last Hurrah -Grantham

Grantham is a very dangerous fade. Those net short should pay attention...

[LargoWinch]

Re: The Last Hurrah -Grantham

"Of course they will need to have Housing prices to increase as well"

I was ready to open my mind to the author premises until I read the above-noted statement.

It is a little like saying:"If unemployment drops to below 6%, then the S&P will break 1,100".

Also, it appears that the author statement lacks rigor and analysis ("my guess is..." Is a good sign of this).

Is there any supporting data attached to the article? (I may have missed it due to the fact that I am typing this on my Blackberry).

[stockman]

Re: The Last Hurrah -Grantham

Largo-

Please don't take issue with Jeremy Grantham based on my own notes at the bottom. Sorry if that wasn't clear in my post.

Grantham is suggesting 1000-1100, see pdf for more information.




This is MY COMMENT, not Grantham's

I've been thinking 1100-1200... about the mid point of stock prices for the last 10 years and recovery from the 'free fall'. If our goal is to inflate asset prices (as Irving Fisher suggest) back to the average price when the debt was created this seems reasonable to me. Of course they'll need home prices to rise as well... and if that takes longer then stocks could over shoot.

[jk]

Re: The Last Hurrah -Grantham

just finished reading grantham's piece. well worth the time. here are the last words:

Therefore, chances we face a long, drawn-out period to
reach a new high (up to 20 years) .85

[btw, it is clear from the rest of the piece that "new high" = new INFLATION-ADJUSTED high.

[Raz]

Re: The Last Hurrah -Grantham

Largo-

Please don't take issue with Jeremy Grantham based on my own notes at the bottom. Sorry if that wasn't clear in my post.

Grantham is suggesting 1000-1100, see pdf for more information.




This is MY COMMENT, not Grantham's

I've been thinking 1100-1200... about the mid point of stock prices for the last 10 years and recovery from the 'free fall'. If our goal is to inflate asset prices (as Irving Fisher suggest) back to the average price when the debt was created this seems reasonable to me. Of course they'll need home prices to rise as well... and if that takes longer then stocks could over shoot.

Thanks for posting this Stockman.
I downloaded it yesterday and never thought about placing it on a forum for iTulipers.

Grantham is a terrible market timer by his own admission, but as a fundamentalist I would be very reluctant to bet against him.
I'm also reluctant, from a timing standpoint (technically), to bet against this guy.
His calls over the past four years have been outstanding.

Investing without Technical Analysis is like driving with one eye closed.
Investing without Fundamental Analysis is like driving with both eyes closed!:eek:


PS. Technical Analysis is a windsock - not a crystal ball.

[WDCRob]

Re: The Last Hurrah -Grantham

Could someone explain to a financial neophyte why getting in on this possible run up in stocks would be preferable to (or complementary to) playing the same (presumably) inflation-driven game using the 'iTulip allocation?'

[phirang]

Re: The Last Hurrah -Grantham

Could someone explain to a financial neophyte why getting in on this possible run up in stocks would be preferable to (or complementary to) playing the same (presumably) inflation-driven game using the 'iTulip allocation?'

the itulip allocation keeps you from jumping from high places.

[WDCRob]

Re: The Last Hurrah -Grantham

That's an argument in favor of iTulip... I'm looking for contra-contrarian opinions.

If stocks are going to rise due to inflation, why not make the safer, "pure-inflation hedge," play? Especially if you're expecting low or no growth?

[jk]

Re: The Last Hurrah -Grantham

grantham is analyzing for equity-mandated investors. that's his playground. you'll notice there is no discussion of commodity-based strategies of any kind, and i don't even recall much mention of bonds, at least in this quarter's letter.

[stockman]

Re: The Last Hurrah -Grantham

That's an argument in favor of iTulip... I'm looking for contra-contrarian opinions.

If stocks are going to rise due to inflation, why not make the safer, "pure-inflation hedge," play? Especially if you're expecting low or no growth?

050909 NYA and Gold.jpg

From a short term perspective...

While the pendulum swings back to risk assets gold should underperform stocks. But that's a short term / trading concern.

[LargoWinch]

Re: The Last Hurrah -Grantham

Largo-

Please don't take issue with Jeremy Grantham based on my own notes at the bottom. Sorry if that wasn't clear in my post.

Grantham is suggesting 1000-1100, see pdf for more information.




This is MY COMMENT, not Grantham's

I've been thinking 1100-1200... about the mid point of stock prices for the last 10 years and recovery from the 'free fall'. If our goal is to inflate asset prices (as Irving Fisher suggest) back to the average price when the debt was created this seems reasonable to me. Of course they'll need home prices to rise as well... and if that takes longer then stocks could over shoot.

Well that will teach me trying iTuliping on my Blackberry .

I missed the pdf link at at the time.

Anyway; now that I am back home, the commentary is a great read indeed, and my previous comment obviously does not apply.

[ddn3f]

Re: The Last Hurrah -Grantham

How good is that guy?

[stockman]

Re: The Last Hurrah -Grantham

How good is that guy?

If you want to kill some time, go to GMO's web site.

Read these as to what he was saying at a few meaningful points in time-

March 2000

GMO Q1 2000.pdf

December 2002

GMO Grantham December 2002.pdf

April 2007

GMO Grantham April 2007.pdf

[Raz]

Re: The Last Hurrah -Grantham

ddn3f asked:

How good is that guy?

VERY good. He's the best chart technician I've come across in my thirty-one years of trading futures and twenty-five years of investing and trading stocks.

No one is infallible, there is no "holy grail" of Technical Analysis (although W. D. Gann came close), and charting is NOT a Crystal Ball. Having said that, Lorusso's calls on Crude Oil have been nothing less than amazing. I would give him an A+++ in the four-and-a-half years I've been reading his comments on Crude Oil. (On May 29, 2008, he called for a Major Top and a "Mini-Crash".) His call on Crude during the Summer and Fall of 2006 were also very good. I'm attaching a file where he made these calls on Crude.

On Gold, in his post of September 6, 2007 he called for a breakout to a new high (above the $723 high set in May 2006). On January 22, 2009 he published a report saying that the setup in gold was the inverse of the October 2008 low, and that gold was likely to top out between $928.70 - 938.20. He missed that one by $67 but never sold it short.

On the S&P 500 I would give him an A - he hasn't been incredible with the stock indexes, but he's been very good. He called for a rally in his post of February 26, 2009 with an outstanding call for a bottom between 685 and the lows of that week (737.50) basis the SPX. The bottom on March 6 was 667.

I find his work to be very helpful - when filtered through the excellent fundamental analysis of EJ and others. When an accurate assessment of the fundamentals point us to the correct asset class, a good technician can help us obtain a better (lower) average price for our investments.