Jeremy Grantham is out with his much anticipated Quarterly Letter and it’s a good one. “Just Deserts and Markets Being Silly Again” is a cutting, snarling, and sarcastic rejection of the prevailing V-shaped recovery bull market view.  But Grantham is far from ultra-bearish, giving a more nuanced and realistic assessment for the medium and longer-term.

He starts his letter with sarcastic allusion to Obama’s Nobel Prize, titling the section “Just Deserts.”

I can’t tell you how surprised, even embarrassed I was to get the Nobel Prize in chemistry. Yes, I had passed the dreaded chemistry A-level for 18-year-olds back in England in 1958. But did they realize it was my third attempt? And, yes, I will take this honor as encouragement to do some serious thinking on the topic. I will also invest the award to help save the planet. Perhaps that was really the Nobel Committee’s sneaky motive, since there are regrettably no green awards yet. Still, all in all, it didn’t seem deserved. And then it occurred to me. Isn’t that the point these days: that rewards do not at all reflect our just deserts? Let’s review some of the more obvious examples.

But, he is just warming up, as he goes on to heap vitriol on 13 groups he feels are equally undeserving of rewards in a scathing condemnation of status quo ante in the economic and financial establishment.

They are:

1. Ben Bernanke
2. Larry Summers and Tim Geithner
3. Mortgage Brokers
4. Homebuilders
5. Over-spenders and under-savers
6. Too-big-to-fail banks
7. Over-bonused financial types
8. Overpaid large company CEOs
9. Stock holders of overleveraged Corporations
10. The U.S. Auto Industry
11. Over-vehicled America
12. Stock options
13. And, of course, Sir Alan Greenspan

This letter is a polemic against the financial elites of a ferocity the likes of which I have never seen from a major fund manager. I see it as a must-read.

As for the markets, he is not all doom and gloom.  But the point that certainly jumped out at me was this:

Corporate ex-financials profit margins remain above average and, if I am right about the coming seven lean years, we will soon enough look back nostalgically at such high profits. Price/earnings ratios, adjusted for even normal margins, are also significantly above fair value after the rally. Fair value on the S&P is now about 860 (fair value has declined steadily as the accounting smoke clears from the wreckage and there are still, perhaps, some smoldering embers). This places today’s market (October 19) at almost 25% overpriced, and on a seven-year horizon would move our normal forecast of 5.7% real down by more than 3% a year.

Translation: the market is so overvalued now that you should expect pretty meager long-term returns in equities.  Does that mean a crash is right around the corner? Not necessarily – but a brutal correction is probably in the offing. Grantham says:

I would still guess (a well-informed guess, I hope) that before next year is out, the market will drop painfully from current levels. “Painfully” is arbitrarily deemed by me to start at -15%. My guess, though, is that the U.S. market will drop below fair value, which is a 22% decline (from the S&P 500 level of 1098 on October 19). 

Unlike the really tough bears, though, I see no need for a new low. I think the history books will be happy enough with the 666 of last February.

The bottom line here is this: the market is significantly overvalued at present levels because of a technical rally super-charged by stimulus. This necessarily means lower returns over a longer-term horizon. The possibility of a major correction is high.

Update: the full letter with a lot more detail, market history and asset allocation recommendations is now linked below instead of embedded due to copyright restrictions.

One other thing: a GMO representative reminded me you that can register with their site and subscribe to the letter and receive it automatically as well.

Source

Jeremy Grantham’s 3Q 2009 letter – GMO website

(the link to the GMO splash page above will guide you to registration in order to view the letter – and to subscribe to future letters)

Related posts:

• More bullishness from Jeremy Grantham
• Jeremy Grantham: “Pull the trigger”
• Jeremy Grantham: “Keep telling yourself… you’re a long-term investor”
• Jeremy Grantham: “Many shares priced for… economic collapse”
• Jeremy Grantham: Overheating in China, speculative rallies and fair value

You have probably noticed a change in tone at Credit Writedowns since about June, but a lot more in the past month or so. Once mildly bullish due to the deeply oversold levels this Spring, I have become increasingly alarmed at the unjustified strength of the recent market rally.

My most recent post explaining my concern, “Major selloff coming?” kind of gives you the timeline. I really would like to be bullish, but I have major issues with this rally on both a technical and fundamental basis:

Technicals

1. The technicals all point to stock markets in the U.S., Europe and Emerging Markets as being overbought. This has been the case for at least two months now. As the market continues up without a pullback, you have to be concerned that any pullback will be violent.
2. There has been an enormous multiple expansion, which is usually what occurs in the middle to latter stages of a secular bull market, not in the beginning of one. It certainly makes one think this is a bear market rally and not a secular bull move.
3. I have said that the massive liquidity dumped into the system is not going to fuel inflation when capacity levels are at historic lows in the U.S.  There is absolutely no pricing power, either for businesses or workers. But, all that money is going somewhere eventually. Right now, it looks like it’s going into asset prices. Liquidity is seeking return.

Fundamentals

1. If you look at the deflationary pressures, they are almost all still at work: poor employment markets, producer price inflation at record low levels (Germany down 7.8% through July y-o-y for example), overcapacity in Europe, China and Asia, back breaking debt levels, etc, etc.
2. But, then, where is the demand?  It’s not there. The consumer is not going to be jumping in here. A lot of the uptick in the economy is inventory-related, not consumption-driven.  So either former exporters, government or business will have to pick up the slack.
3. And let’s not forget my favourite whipping boy, the financial sector. In the U.S., there are a lot of toxic assets on balance sheets, while leverage and equity capital ratios are still poor.  That speaks to the need for continued deleveraging and low loan growth in the financial services sector.

So while a snap-back rally was inevitable given how oversold things had become in March, this rally has been a bit over the top.  I am not alone in this assessment.  The Wall Street Journal has pointed to Jeremy Grantham and a few other March bulls who are now speaking in more cautious tones.

…Jeremy Grantham, penned a note on March 10 entitled "Reinvesting When Terrified" that encouraged investors to buy, suggesting stocks were 30% undervalued.

Since then, the market has roared ahead, without stopping for a correction of 10% or more. Standard & Poor’s 500-share index ended last week at 1026.13, up nearly 52% from its 12½-year low on March 9 and its highest close since Oct. 6. The Dow Jones Industrial Average is at 9505.96, up 45% since its March low.

Now, the chairman of Boston asset-management firm GMO and his colleagues say the S&P 500 has zoomed right past what they consider fair value of about 880, based on earnings estimates and historical price-to-earnings ratios.

Notice the part about not having had a correction, which I see as a contrarian indicator.  Back in May, Grantham said a leap up to 950 and then a sideways move between 950 and 1050 on the S&P meant the market was modestly overpriced.  That is not a sell signal. This is where we are right now. But, at 1026, we are dangerously close to breaking out of that range to the upside – which would be a sell signal.

With the City and Wall Street ready to return to full speed soon, we will get a better taste of what is to come due to higher trading volumes.  But, for now, I am mildly bearish on shares.

Related posts:

• Rosenberg: Market rally is just multiple expansion
• Kass: Bearish on equities
• Are the markets set for a pullback?
• Overbought?
• Jeremy Grantham: The market is 25% overvalued; 15% correction coming

Jeremy Grantham is out again with a very important investment strategy piece entitled “Boring Fair Price!”  He leads off by talking about how markets went from extremely overvalued a year ago to cheap back to a state which he considers fair value.  But, he sees the recent rally as a speculative rally which is a response to the savage beating markets took late last year and this past Winter.

Waiting for Markets to be Silly Again A year is certainly a long time in markets, and so is a quarter. A year ago, equities globally – and everything else for that matter – were very overpriced, particularly if they were risky. A quarter ago, in mid March, prices everywhere were cheap. Now they have all – or almost all – converged for a few unusual moments at fair value. A year ago, it was very easy to know what to be: a risk avoider. It was not so easy reinvesting when terrified, but most of us knew that we should have been doing more. But today? It’s difficult to be inspired at fair value. Since early March, the market has had the type of strong speculative rally that often follows extreme declines. The danger of a breathtaking rally is that it leaves those few investors who raised considerable cash waiting for a pullback and psychologically invested in the case for a new bear market leg. This was covered in our mid- March posting, “Reinvesting When Terrified.”…

I tried to make the point that such a rally had absolutely nothing to do with the logic. of long-term fundamentals, but was merely a response to great stimulus and great implied promises. Well, this time once again, enough risk takers were found to get the job done, and the market rose to 950, with presumably at least a decent shot (say, 50/50) at rising over 1000 in the next two to three quarters.

This is my tack as well as I explained in a June post Market manipulation, short-covering rallies and cyclical bulls.  Just because the fundamentals do not support a rally, doesn’t mean it can’t happen. Momentum, stimulus, moral hazard, technicals, you name it – they can all be factors causing a market to bounce significantly despite poor fundamentals.  And these speculative moves can certainly continue for much longer than a fundamental bear with a short position can withstand.  But, now it is looking like the market may have surged beyond what is even sustainable in the short-run.  What to do?  Grantham gives his perspective.  I have linked some of the points he makes to previous posts of mine that make the same arguments.

Plan C: What to do if the Market Overruns

Given our view that we are in for seven lean years in which the market will be looking for an excuse to be cheap, we recommend taking some risk units off the table, including becoming underweight in equities – between 1000 and 1100 on the S&P, if it gets there this year. Around 880 you should continue to move slowly to fair value, twiddle your thumbs, and wait to see what happens. Boring! Otherwise, it is time to focus on the lesser issues: which types of equities are cheaper or more expensive than the market. This leads us back once again to the bet on quality stocks.

The Quality Bet

The easy winner of the cheapest equity sub-category contest is still high quality U.S. blue chips. They were really trashed on a relative basis by the second quarter rally in junk. I understand a rally in junk after the record decline, but this was excessive and based apparently on unrealistic hopes for a strong, sustained economic recovery. Such a recovery seems most unlikely, whereas a temporary, weaker recovery appeared very likely three months ago as the substantial size of the stimulus package was revealed. The latter scenario still seems probable. Our original estimate for the timing of some economic recovery to occur late this year or early next year still stands. Without an unexpectedly strong improvement in the economy, it is hard to see high quality stocks losing much more ground, given their extreme value gap over junky stocks – more than an 11 percentage point spread per year on our seven-year forecast!

My synopsis: expect a weak recovery of uneven quality late this year or early next year.  That means you want to be overweight value and not reach for yield or risk as these asset classes are overvalued on a relative basis.  This is the same advice from Richard Bernstein, the astute market strategist formerly at Merrill Lynch.  Now when looking across global equities for shares to buy, emerging markets come to mind.  And Grantham is generally pretty bullish here.  However, a key note of caution comes on China.

My colleague, Edward Chancellor, strongly suspects that the Chinese economy is dangerously unbalanced and very likely to come unhinged in the next few quarters, surprising the pants off investors. On the other hand, the strong longer-term case that I outlined in “The Emerging Emerging Bubble” 15 months ago seems intact. I suggested then that emerging equities would sell within five years or so at a distinct P/E premium to celebrate their obviously superior GDP growth compared with that of an aging developed world. Emerging market equities are already selling at a modest premium to EAFE and the higher quality half of the U.S. equity market. Being pro-emerging yet anti-China is a dilemma for us; we are working to resolve it. Meanwhile, emerging equities, like most risky asset components, are moderately overpriced. We in asset allocation may, however, push our luck in emerging – particularly ex-China emerging – using inertia to reduce our current modest overweight. If we do this, it will be out of respect for the high probability that emerging equities will sustain and increase their overpriced level relative to the rest of the world.

Translation: Emerging markets have rallied way too much.  China is looking dangerous in particular.  However, we are holding positions ex China and not yet selling as these markets still may outperform.

Bottom line for me: this is NOT a bull market, and as such asset allocation decisions are fraught with risk. Running with a buy and hold strategy in this environment may not be the best strategy. Grantham has a ton more to say and it is a very good read.  I do suggest you read the entirety of his piece, which is linked below as well as being available here.

Jgletter All 2q09

Source

GMO Quarterly Letter July 2009 (PDF) – Jeremy Grantham

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• More bullishness from Jeremy Grantham
• The mega Jeremy Grantham interview on how durable the rally will be
• Jeremy Grantham: The market is 25% overvalued; 15% correction coming
• Jeremy Grantham: “Keep telling yourself… you’re a long-term investor”
• Market manipulation, short-covering rallies and cyclical bulls

David Rosenberg is out with a bearish piece on equities today (I hop that doesn’t surprise you).  He sees the market as still overvalued at these levels. The key, he say is that most of the rally has been built on multiple expansion and not earnings growth. Here is what he says (emphasis added)

We heard at the market lows in March 2009 that the stock market had sunk to Armageddon levels. We have often thought about that because we can certainly understand that at the 2.0% lows on the 10-year Treasury note yield, we had gone to a place we had not seen in over five decades. Also, with Baa spreads north of 600bps, we could see that corporate bonds had moved to levels not seen in seven decades as well.

But this notion that we had moved to Armageddon lows in equities does not seem to hold water. After all, the forward P/E multiple on the S&P 500 at the lows was 11.7x. That was not a multi-decade low or some massive standard-deviation figure — we were actually lower than that at the October 1990 lows when the multiple was 10.5x and frankly, coming off the 1987 collapse, the forward P/E had compressed to 9.8x. As it now stands, the multiple is back very close to where it was at the October 2007 market high, when the multiple had expanded to 15.0x. The range on the forward P/E over the last quarter-century is between 9.8x and 21.8x (excluding the tech bubble), so at 14.5x currently, it is hardly the case that this market can be viewed as a bargain.

On a trailing earnings basis, the P/E multiple has actually widened, from 17.0x at the lows to 23.3x currently, a huge multiple expansion. At this stage of the 2003 recovery, the multiple hardly expanded at all, earnings were driving the rebound; coming off the October 1990 lows, the multiple expansion four months into the rally was closer to 2x and the powerful surge in the post-1982 recovery saw a 3x multiple point expansion at this juncture — not 6x!

Back in November 2007, just as the recession was about to take hold, John Mauldin commented that 80% of the stock price appreciation in the 1980s and 1990s bull market came from multiple expansion (also see his May 2006 piece with research from Jeremy Grantham on this).  So, obviously, multiple expansion is part and parcel of the psychology of secular bull markets.  However, Rosenberg’s piece reveals that all secular bull markets in the U.S. for which data is available have started from price-earnings multiples that are much lower than we are seeing at present.  Translation: this is not a secular bull market.

What we have seen since March is a bear market rally, nothing more.

Source

Multiple-Led Market May Meander – David Rosenberg

Related posts:

• Kass: Bearish on equities
• Rosenberg: Still a bear market rally
• Rosenberg thinks U.S. market may Test March lows
• Getting bearish again
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This is an interview in five parts via Morningstar on May 28th with the one-time reputed perma-bear Jeremy Grantham who has been sounding much more bullish of late (in a bear-market rally kind of way).  Definitely worth a look.  The five parts run just over 20 minutes.

Part 1: On dipping a toe back into the market – and how a lot of people missed the huge surge in equities. He says this about the market: “It’s a very uncertain world. It may not come down again materially Of course it may. But you can’t risk being left behind for years.”

Now, on the surface this sounds like Chuck Prince heresy about dancing when the music is playing, but if you watch the later segments, you will see that he does believe the fundamentals are behind his call to increase equity weighting to at least neutral.  Note his little dig at the efficient market hypothesis as “inaccurate’ and “dangerous.”

http://www.morningstar.com/cover/videocenter.aspx?id=295077

Part 2: We expose a definition of what high quality is according to Grantham because high quality seems to have underperformed in the recent market melt-up.

http://www.morningstar.com/cover/videocenter.aspx?id=295076

Part 3: Grantham touts his seven lean years meme.  It sounds a lot like a balance sheet recession as expounded by Richard Koo, the Chief Economist of Nomura.  Note how much he stresses the psychological effects of the huge upswing and its aftermath.  My takeaway here is that consumer discretionary is not a place to overweight in this environment. See Real Time Economics’ recent post, “Which Industries Are Most Vulnerable to Consumer Shift?”

http://www.morningstar.com/cover/videocenter.aspx?id=295072

Part 4: Value investing is at the core.  He believes that return on capital is MORE important than top line growth i.e. value beats growth.  He uses China to illustrate his point, confident that they will have huge growth but not confident this will feed through to exceptional return on capital in Chinese equities. “Overwhelmingly everything comes to starting point value.”

http://www.morningstar.com/cover/videocenter.aspx?id=295075

Part 5: Inflation is top of mind for Grantham.  He is not in the deflation camp at all because inflation is where GMO is investing its extra time in navigating the investing minefield right now. By the way, this means you don’t want to be long the long-end of the treasury curve.

http://www.morningstar.com/cover/videocenter.aspx?id=295073

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• More bullishness from Jeremy Grantham
• Jeremy Grantham: “Pull the trigger”
• Jeremy Grantham: “Many shares priced for… economic collapse”
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• Jeremy Grantham and experts: credit crunch far from over

Jeremy Grantham is out with his quarterly update. And he has a number of investment themes worth mentioning.  First, I should mention that his global outlook is fairly downbeat:

We are experiencing the most severe synchronized global downturn in several generations. While governments have been quick to react, there are limits to what policy can do beyond blunting some of the edge of a massive consumer deleveraging cycle in the U.S. and elsewhere. Of course, times of trouble can often be profitable times to invest when they are reflected in depressed prices. And the valuation levels of equities suggest that forward return prospects are indeed much improved. This analysis is best tempered with a realization that financial results are slow to reflect the new economic reality, and that many superficially cheap stocks may fast start to look expensive as their financial position deteriorates. In that light, the Japanese market looks attractive, since it seems unlikely that the next 10 years will be fundamentally worse than the last 10, whereas in the U.S. or Europe that seems quite possible, if not probable.

Emphasis added.  I think this view is in line with my “Fake Recovery” meme which basically says we are seeing a stimulus induced cyclical upturn but that will not presage renewed economic vigor until structural issues are dealt with.  Whether or not we are in a new bull market (I tend to see this as a bear market rally), there are still many opportunities to pick up quality assets selling at depressed valuations.  In line with my thinking, I have repeated Grantham’s broad investment themes below. They are moderately, but not overly bullish, with a preference for high quality over low quality and protection against inflation.  You should note that Richard Bernstein, the now departed strategist at Merrill Lynch had recently outlined similar strategies.

Our broad strategies are:

• Emphasize more defensive fixed income and high quality U.S. equities. Having rallied into the teeth of the crisis as the only liquid safe haven asset, sovereign
  bonds now look dangerously over valued. Unless deflation is deep, prolonged, and persistent, government bond investors are likely to be very disappointed in the medium term. In addition, it is very possible that the size of new issuance will likely further undermine current pricing.
• Adopt a bias toward high quality stocks. Value stocks are no longer a “value” and remain expensive relative to growth stocks and the market. High quality stocks trade at a slight premium to the market when historically they have traded at a much wider 18% premium to the market. While the profit margins of financial stocks have evaporated, the profit margins for other sectors are now poised to get much weaker. Quality has outperformed so far this year as financial companies have borne the brunt of the current turmoil. We believe quality will fare significantly better in the event of a worsening economic outlook.
• Prefer real yields in inflation protected bonds. Real yields are no longer as attractive after the flight to quality and liquidity episode of last quarter. Nevertheless, inflation protected securities are to be preferred to their nominal cousins. Although short-term inflationary pressure is muted, the likelihood of increasing inflation in the future has been facilitated by substantial monetary easing and quantitative easing policies.
• Continue reducing underweight to equities. Valuations are beginning to look attractive in some equity markets. In particular, international developed and emerging equities are once again offering appealing expected returns. These higher expected returns, however, are due entirely to falling prices and certainly
  not due to improving fundamentals. As a result, our enthusiasm remains somewhat tempered by an uncertain outlook for profitability. Despite these reservations, we believe it is prudent to start reallocating to these sectors while reducing our overall equity underweight.
• Overweight more conservative fixed income and cash/cash “plus” in balanced portfolios. It is difficult owning fixed income at the current low yields, but we believe it is much less volatile than equities. Consequently, we have overweighted cash/cash “plus” strategies in our balanced portfolios and even owned some cash/cash “plus” strategies in some of our global accounts where permitted. We do not own cash “plus” strategies lightly, and it is the first time in almost 20 years of managing asset allocation portfolios that we have allocated a significant portion to cash. However, as we begin shifting back toward equities, we will reduce cash “plus” strategies commensurately.
• Where possible, invest in conservative absolute return strategies, which can provide equity-like returns while improving diversification through low correlations with equity markets. Try to ensure that alternative strategies are providing true diversification with low correlation to traditional asset classes.

You should definitely have a look at the complete document at the GMO website.  It has much more detail and is available for free to registered users.

Update 8 May 2009: As the accompanying letter to investors is available all over the web now, I am posting here for your viewing pleasure as well. This is a good supplement to the outlook. Enjoy.

GMO 2009 Q1 Letter

Source

GMO Quarterly Update – Grantham, Mayerloo and Otto website

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Jeremy Grantham, who is chief investment strategist of Grantham Mayo Van Otterloo & Co and manages over $85 billion is telling clients to get out of cash.  His March newsletter had this to say:

Every decline will enhance the beauty of cash until, as some of us experienced in 1974, ‘terminal paralysis’ sets in. Those who were over invested will be catatonic and just sit and pray. Those few who look brilliant, oozing cash, will not want to easily give up their brilliance. So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery…

For the record, we now believe the S&P is worth 900 at fair value or 30% above today’s price. Global equities are even cheaper. (Our estimates of current value are based on the assumption of normal P/Es being applied to normal profi t margins.) Our 7-year estimated returns for the various equity categories are in the +10 to +13% range after infl ation based on an assumption of a 7-year move from today’s environment back to normal conditions. This compares to a year ago when they were all negative! Unfortunately it also compares to a +15% forecast at the 1974 low, and because of that our guess is that there is still a 50/50 chance of crossing 600 on the S&P 500.

This would suggest that we are in the overshoot phase of the bear market, with most of the decline being sentiment driven. Could we go to 450 on the S&P, yes (I fully expect us to go lower still after a bear market rally). But, in going lower, the market would make more and more value plays apparent.

Related posts:

• Jeremy Grantham: “Pull the trigger”
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• Jeremy Grantham: The market is 25% overvalued; 15% correction coming
• Jeremy Grantham: the bear growls
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In a Fortune article about how the market is hitting new lows, Jeremy Grantham predicted we will see a material new low (HT Paul Kedrosky).  He’s talking about 600, or mind you, 450 on the S&P 500.  Now, that’s low.

Nevertheless, he’s fairly bullish here. Grantham says buy and hold is not a problem for long-term investors with stock prices at these levels. One should start buying and stick to a strict buying program here.

“If you don’t have a schedule for investing, you will not do it,” he says. “When the market goes down, it reinforces the hoarding of cash. By the bottom, you suffer what we called in 1974 terminal paralysis — you cannot pull the trigger. Almost everyone who avoids the great pain is very slow to get back.”

In a nutshell, he’s saying, “Buy low and sell high.” Everyone knows that is what you are supposed to do but fear and greed usually prevent this from happening. Right now, the market is all about fear. Unless you schedule your investments, you may find yourself incapable of pulling the trigger in a falling market.

Source
Tracking the bear: How bad could it get? – Fortune

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The renowned money manager Jeremy Grantham has had his first television interview ever with Consuelo Mack on Mack’s program WealthTrack.  Below is the video from that interview. 

Consuelo has a very good program and I recommend perusing her site for further interviews and market information. The WealthTrack site is here

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Jeremy Grantham has seen this crash coming for quite some time. Nevertheless, he is not selling everything and waiting out the market in Kruggerrands and cash. has kept a good long-term perspective about investing that bears repeating here.

Keep telling yourself every night that you’re a long-term investor and don’t look at daily stock prices. And it’s not too late to shift some of your money to high-quality blue chips. Emerging markets are probably no longer too expensive either. If you had 80% of your stockholdings in blue chips and 20% in emerging markets, you’d have a pretty reasonable portfolio to ride out the bad times.
-Jeremy Grantham, CNN Money

The crux of his comments are that good long-term investors do not just passively accept what the market dishes out. They actively manage their investments for long-term performance. One need not panic and sell everything. A better strategy would be to keep enough cash to cherry pick those investments that cheap in order to profit over the long-term.

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“I am officially scared. In 2000, we had a technology bubble. But this is massive, a massive credit crisis and a bubble in global housing, global equity and global land.”
-Jeremy Grantham as quoted by Chicago Tribune

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Super-bear Jeremy Grantham had something positive to say for once. Well actually it’s only a friend of Jeremy Grantham, oh well. But it IS positive — sort of.

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The tenor was downbeat at a panel put together by Pensions and Investments online that included well-known Boson-based investor Jeremy Grantham. Grantham is on record as being a sceptic of the current investment climate and sees the rally from 2003 as a bear market rally in the middle of a secular bear that started in 2000.

Below is an excerpt from P&I online and a link to the full article.

Prescient experts saw gloom on horizon

P&I round table predicts any improvement in credit markets still a long way off

The credit crunch is far from over, a Pensions & Investments round table of investment experts predicted a month ago. To date, their warnings largely are coming true.

A mostly gloomy panel warned there will be further carnage in both fixed-income and equity markets, and that pension fund executives expecting average annual returns of 8% for the foreseeable future are likely to be disappointed.

-P&I Online, 7 Jul 2008

The group identified one of my major concerns in lengthening this downturn: political interference.

Further complicating matters has been the public and government outcry to name a scapegoat, namely the entire financial sector, Mr. Goetzmann said. The quest for information and congressional hearings would only lengthen the crisis, further weakening the U.S. financial system and stymieing innovative ways to restructure debts and restore investor confidence, he said.

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Jeremy Grantham, a hedge fund manager based in the Boston area, is one of the more respected money managers who has had a cautious view on equities during this past economic cycle. The Canadian daily Globe & Mail has a good interview with him. Text is below.

Source
Grantham: the bear growls, The Globe & Mail, 17 Jun 2008

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