Tuesday, December 6, 2011

Jeremy Grantham Quarterly Newsletter December 2011 Summary

Jeremy Granthan from GMO has just released its Quarterly Newsletters entitled "The Shortest Quarterly Letter Ever".

Yes, it's short, it's just 4 pages long and comprise a list of notes to himself, subject that he plans to write about mainly:
  • Caution is advised due to the situation in Europe.
  • The U.S., and to some extent the world, will not easily recover from the current level of debt overhang.
  • Western world will know a period of slow growth due to population dynamics and lack of savings especially in the US and the UK.
  • US income gap inequality.
  • Equity markets have been absolutely bombarded by bad news since last spring.
  • Profit margins are likely to decrease.
  • “No Market for Young Men.”: A market forecast of the market (S&P 500) based on previous bear market and showing it return below 1000 and staying there for about 10 more years.
  • Underweight equities until the market becomes cheap again or during the next 3rd year of the presidential cycle (2015) whichever comes first.

Finally he gives some recommendations:

  • Avoid lower quality U.S. stocks but otherwise have a near normal weight in global equities.
  • Tilt, where possible, to safety.
  • Try to avoid duration risk in bonds. For the long term they are desperately unattractive.
  • I like (personally) resources in the ground on a 10-year horizon, but I am nibbling in very slowly because, as per my Quarterly Letter on resources in April 2011, I fear a major short-term decline in commodities based on a combination of less bad weather – which has been bad, but indeed less bad – and economic weakness, especially in China. Prices have declined, often quite substantially, since that letter. However, I believe chances for further price declines in resources are still better than 50/50 as China and the world slow down for a while, and the weather becomes a bit more stable.
You can read the complete 4-page newsletter available for free on GMO website.

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