By
Dr. Steve Sjuggerud
Wednesday, October 28, 2009
Jeremy Grantham made the "Two Big Calls" better than anyone in history.
1) He called the peak in the dot-com bubble...
In a fantastic interview with Outstanding Investor Digest in May 2000, Grantham saw no hope of anything but a bust – at a time when everyone was buying stocks. The interview headline was "Bubbles have always given back everything, there have been no exceptions – NONE."
2) Grantham said "buy" in March 2009, a day after the market hit bottom. It then soared nearly 60%.
On March 9, he wrote a letter to his customers saying, "We now believe the S&P is worth 900 at fair value or 30% above today's price. Global equities are even cheaper." While everyone else was scared to death, Grantham was buying.
Two big calls, right on both counts. So I always read Grantham's insights.
His latest quarterly letter came out this week. Yet again, it's full of gems of wisdom. But the most amazing part of the letter came at the end, when he shared his track record...
Grantham publishes his seven-year forecasts every quarter. In short, over the last seven years, nobody did it better than he did. With the exception of U.S. real estate stocks (REITs), Grantham got the order right – the ones he predicted to perform the best did. And vice versa. Take a look:
Asset Class
Estimated Rank
7-Year Forecast*
Actual 7-Yr Return
Actual Rank
Emerging-Market Equities
1
10.0%
14.3%
1
Int'l Small Caps
2
8.9%
7.7%
3
U.S. REITs
3
8.1%
1.5%
10
Emerging-Market Debt
4
6.9%
9.2%
2
EAFE
5
6.5%
4.0%
7
Foreign Bonds
6
4.6%
6.8%
4
U.S. TIPS
7
3.1%
5.3%
5
U.S. Small Caps
8
2.8%
3.0%
8
Lehman Aggregate
8
2.8%
4.4%
6
U.S. T-Bills
10
2.1%
2.1%
9
U.S. Large Value
11
1.1%
0.9%
12
S&P 500
12
0.5%
0.8%
13
U.S. Large Growth
13
-0.2%
1.2%
11
* real return/year
This was not guesswork... The probability of picking them in that order or better is 1 in 900, according to Grantham.
In Grantham's latest seven-year forecast, he says the outlook for bonds is terrible. For stocks, it's not much better. Your best bet is in foreign stocks... And if you have to invest in U.S. stocks, stick with high-quality blue chips (most of which collect half their earnings overseas anyway).
After increasing his holdings of U.S. stocks in March, Grantham now says they're more than 20% overpriced today. (Remember, they've risen some 58% since their March lows.)
Grantham is now taking some money off the table. He 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" starts at -15%.)
All in all, Grantham says it's "a safe bet that seven lean years await us."
He called the dot-com bubble in 2000. He said to "buy stocks" in March 2009. And his predictions over the previous seven years might be the most accurate big-picture forecast in investment history.
Jeremy Grantham is a man worth listening to. If you're seriously into markets and politics, his latest letter is worth hours of close study. (You may not agree with everything he says... but based on his track record, it's worth considering.)
You can find Jeremy Grantham's latest quarterly letter at www.gmo.com.
Instead of "Market Notes," we should call this column "Stimulus Notes." After all, copper just surged to a new 2009 high.
Copper is a major component in everything around you... from power lines to plumbing to refrigerators to cars. This "in everything" factor makes it an excellent gauge of global economic activity.
As you can see from today's chart, the economy is active right now. Last week, copper "broke out" of a consolidation period started in August to reach a fresh 2009 high. Amazingly, the metal has nearly recovered to pre-crash levels of $3.25 per pound.
What should we take away from copper's breakout? Well, you should know the huge stimulus programs coming from the U.S. and Chinese governments are "working." These governments have flooded the world with cheap loans and easy money... which is driving demand and speculation in markets like copper and oil. And you should know one more thing...
If the trend of higher copper and higher oil continues, you should know our new "bailouts and credit for everyone" policy is debasing paper currencies... and that old ugly girlfriend from 1970s, inflation, is back in your life in a major way.
A Shocking Presentation from a Master Speculator By Tom DysonTuesday, October 27, 2009
Doug then explains how inflation, not bankers, caused the financial crisis... why democracy is a terrible way to organize society... how global warming is a hoax... and why most modern schools and universities are a complete waste of time if you're looking for an education.
The Perfect Place for Expatriates By Tom DysonMonday, October 26, 2009
The weather is wonderful. It never freezes. In the summer, you rarely need air conditioning. Travel connections are great, too. The international airport is two hours away and offers direct flights to the United States and Europe.
The Next Currency to Crash By Dr. Steve SjuggerudFriday, October 23, 2009
In the past, it was tough for individual investors to bet against the yen, particularly in retirement accounts. You couldn't trade futures or options, and you couldn't go short. But now there's a way to bet against the yen AND get a bit of leverage AND do it all in your retirement account.
The Road Map to Making a Fortune in Emerging Markets By Chris MayerThursday, October 22, 2009
Over lunch one day, Jimmy told us the advice he gave Harsh: "When you are in America, take note of all the daily conveniences you enjoy. Write them all down. Then, when you come back to Mumbai, check that list again. Whatever's missing, start a business around that."
