More bullishness from Jeremy Grantham

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.