The Mega Jeremy Grantham Interview

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.”

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.

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?"

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.”

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.

  1. Bob_in_MA says

    Whenever someone I am unfamiliar with is presented as a pundit, I run the Google news test on him.

    Here’s a forecast from Grantham: ‘But the bear [Grantham] seems to have lost his growl. His prediction for the next 12 months? “A modest up year, with a mixed return to risk-taking but strong emerging market performance, would be my guess.”‘ – Oct 24, 2007

    Sorry, but I don’t think I’ll bother with the videos…

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