Comments on: Jeremy Grantham: Last Hurrah and Seven Lean Years

By: Debt is Accounting, Not Reality at Creditor.net

Debt is Accounting, Not Reality at Creditor.net — Thu, 14 May 2009 16:43:39 +0000

[...] Ritholtz highlighted a great downloadable PDF from Jeremy Grantham of GMO titled The Last Hurrah and Seven Lean [...]

By: No Homework this week « Roi Paul

No Homework this week « Roi Paul — Mon, 11 May 2009 20:47:38 +0000

[...] back. Betting evenly on a down slope now or later this year I was left with neither bargain nor homework. I then, felt obliged to sink myself in work (yes day work) late into the night. some posts on that [...]

By: jz

jz — Mon, 11 May 2009 20:19:11 +0000

The cause of deflation is lower demand and in both the U.S. in 1932 and Japan in 1990, Grantham correctly mentions both countries cranked up the money supply. Cranking up the money supply even as massively as we and the rest of the world is doing has NEVER been shown to be a cure for deflation. He is assuming it is going to work, and the rest of his predictions are based on that assumption.

In fact, most people who talk about the stimulus expect it to be a cure and lead to massive inflation, but they never mention real estate as an asset class that would inflate. If real estate were to go up, our banks would be saved. That is the whole goal of the stimulus.

But it is not that easy. Even if credit were available, are consumers going to go back to buying houses like they did in 2005 and 2006? I doubt it. They know now that home prices can go down.

In addition, there is the demographic problem. People in the U.S. are getting older, and they don’t need the big homes that they did when they had children. Add it all up, and I just don’t see a resurgence in demand for homes.

My guess is the American consumer is much more willing to do with less than anyone anticipates. I don’t think economists have picked up on how much this round of deflation has affected consumer psychology. You can give the consumer credit but you can’t make him buy. My bet is deflation is here to stay.

By: samuel5

samuel5 — Mon, 11 May 2009 19:14:47 +0000

grantham is apparently not willing to share any real economic insight
he is describing where the car might go based on where it has already mostly been in the past
he is describing the contour of the body but not how it works, why it will go the speed it will go
what are the real factors affecting US & world growth and how are these likely to unfold?
it is easy to skirt those issues when you do not have a clue
he is not acutely aware of the situational economic factors
a truly lacklustre report based on little effort
very little original thought, and i can see he listens intently to marc faber to get ideas
he ingeniously paints a picture of himself more or less sitting on a fence: “the mkt can go down,
the mkt can go up, the mkt can go down and then up, the mkt can go up and then down” Bravo!
With forecasting like that, you may as well just take your money play the lottery
His verbosity on asset allocation is a ruse to deter you from realizing too quickly a simple
fact: he hasn’t a clue
but of course he still needs to put something out that would hopefully be construed as acceptable. Bravo! You and Alan Greenspan can share the same intellectual prison cell.
Here, I’ll rip a page from Granthams forecasting manual:
Of course things may work out exactly the way he is guessing. Or they may not even be close to that.
Then again they could fall somewhere in between … at some point over the next million years or so.

By: bogwad_seigneur (the smelly one)

bogwad_seigneur (the smelly one) — Mon, 11 May 2009 05:23:22 +0000

For such a thorough piece of (otherwise outstanding) analysis, it contains one glaring factual error (Page 7, col 1):

On the stimulus side it certainly had
the Marshall Plan, the very high point of enlightened
and generous American foreign aid. On the other hand,
surprisingly, the U.K. received more Marshall aid than the
Germans, who had far more damage to their infrastructure

Demonstrably untrue. The Brits got porked in the *** after WWII. Truman yanked lend-lease instantly, and the UK had to come to Washington cap-in-hand looking for aid, receiving a measly $3bn or so under what some might describe as usurious terms.
What an odd mistake!

By: bogwad_seigneur (the smelly one)

bogwad_seigneur (the smelly one) — Mon, 11 May 2009 05:21:14 +0000

For such a thorough piece of analysis, it contains one glaring factual error (Page 7, col 1):

On the stimulus side it certainly had
the Marshall Plan, the very high point of enlightened
and generous American foreign aid. On the other hand,
surprisingly, the U.K. received more Marshall aid than the
Germans, who had far more damage to their infrastructure

By: KC

KC — Mon, 11 May 2009 04:27:40 +0000

Right after I read this, I read John Mauldin’s recent release, and then John Hussman’s recent release…and my head is spinning. 3 people agreeing about where the economy is headed, but all 3 have completely different views of where the market is going. Grantham says it’ll go up. Mauldin says it’ll go down. Hussman says it’ll go sideways.

I think at this point I’ll just stick to what I’ve been thinking all along: until housing stabilizes, I don’t see how our economy will see more than one ‘outlier’ quarter of positive growth anytime soon. And by ’stabilizing’, I mean the case/shiller going back up to -5% Y/Y. I say 440 is a nice S&P bottom…and I think July 2010 seems like a nice month for that bottom to occur.

I’m glad I read this article. It has helped me see the other side…the possibility that all of an hour ago I saw no possibility of whatsoever. This will be very interesting if we break through the 200DMA this week. I know the P/E is completely useless at this point, but it’s at 65 right now. Throw in the low volume, and the 200DMA that is intersecting the massive level of resistance at 944, and one just wouldn’t think that this rally could last much longer.

By: thetanman

thetanman — Mon, 11 May 2009 04:01:39 +0000

Some one posted some very good trading rules a while back. Upswing, then a consolidation, and a continuation in the same direction. If you look at a DJIA chart, this rule is working perfectly so far. The second ramp should be appx the same size as the initial blastoff. So that would mean Dow to at least 9600. There are also inverse HS all over the place that broke out near the end of April that have not reached their targets. Voodoo? Hey at least its working and we’ve all seen these patterns play out to both the upside and downside since ‘00. Remember ‘06? It works a lot better than sitting around for years waiting for some one like Bob Bronson to finally get something right.

By: Tradebum

Tradebum — Mon, 11 May 2009 02:47:02 +0000

I wonder if these old timers are missing something, like: $624T Derivative market? And population? And entiltement programs that have become unsustainable? And decrease in wages except for the top earners? And inflation does exist the fed is just better at hiding it by convincing us that $500,000 houses are a good thing? But if I can’t afford the mortgage because I can’t get 3 jobs to cover the nut before taxes then how can the price be justified? And what about commodities? They can’t wait to get oil back up to $100 a barrel. Then what? Is Grantham kidding comparing this to 1930’s? Things are sooooo….much different today in sooooo….many ways that even China AND Brazil won’t be able to pull the world out.

By: Patrick Neid

Patrick Neid — Mon, 11 May 2009 01:32:31 +0000

As stated by a very few of us more than eight months ago, no plan is the best plan.

“Let me end this section by emphasizing once again the
difference between real wealth and the real economy on
one hand, and illusionary wealth and debt on the other. If
we had let all the reckless bankers go out of business, we
would not have blown up our houses or our factories, or
carted off our machine tools to Russia, nor would we have
machine gunned any of our educated workforce, even our
bankers! When the smoke had cleared, those with money
would have bought up the bankrupt assets at cents on the
dollar and we would have had a sharp recovery in the
economy. Moral hazard would have been crushed, lessons
learned for a generation or two, and assets would be in
stronger, more effi cient hands. Debt is accounting, not
reality. Real economies are much more resilient than they
are given credit for. We allow ourselves to be terrifi ed by
the “fi nancial-industrial complex” as Eisenhower might
have said, much to their advantage.”