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Market Outlook by Jeremy Grantham

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October 26, 2009 – Comments (5)

Here's a well-written and insightful article where Jeremy Grantham describes the "lessons unlearned" from the recent economic developments, and then explains his market outlook. He's a highly-regarded value investor who's been right on the money for the past decade, so he seems to know what he is talking about.

The article is an easy read, but in short:

- He predicts the market will have a significant drop (15%+) by early next year.

- He believes that an emerging markets bubble is forming and will grow during the next few years.

- The economy will experience "seven years of lean growth". The current markets are overvalued if this is the case.

- High-quality stocks are cheap and will outperform in the coming years.

These are some themes that have been said before, but this article presents the evidence more convincingly than I've seen elsewhere. Enjoy.

Article (registration required)

5 Comments – Post Your Own

#1) On October 27, 2009 at 1:23 AM, checklist34 (99.13) wrote:

Grantham has a good history without question.  However, that noted,  his estimate of fair value at S&P 880 is to me a bit of a stretch.

At 880 the S&P is considerably under historical averages for price/sales, price/book, and so forth.  Considering the weak dollar, they are from a world perspectives probably quite cheap.

At S&P 880 CBI was 8 bucks, ASH was 25, GNW (recently controversial again!) was $5, BZ was $1, and more.  Stocks were very cheap indeed in early july with the S&P around that level.  

:)

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#2) On October 27, 2009 at 1:48 AM, walt373 (99.88) wrote:

Good points. Any prediction for a fair value on basically the entire US economy should be taken with a grain of salt, regardless. But we all need to form our opinions somehow, and he is a bearish opinion I respect. You are certainly right, though, that currencies throw a wrench into market valuation.

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#3) On October 27, 2009 at 2:06 AM, Oraclepicks (< 20) wrote:

I have read several articles pointing at S&P 500 carrying a current p/e ratio of 138. any thoughts on why this is not alarming to anyone ?

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#4) On October 27, 2009 at 3:49 AM, checklist34 (99.13) wrote:

oracle.  because A) i don't think the S&P does have a p/e of 140

B)  factoring out AIG alone would lower that probably to 70 or something

C)  factoring out non-real losses at insurance companies and others would lower it further

D)  once in a lifetime losses at cyclicals due to the dramatic plunge last fall in economic activity and commodities prices

E) said dramatic plunge causing enormous amounts of goodwill (questionable in value, but nonetheless creating a GAAP loss when written down) being written down

and stuff.  when one measure of valuation is dramatically different thanthe others it should perhaps be viewed in a mildly skeptical light.

price/sales remains below historical averages, as does price/book and, i believe, price/cash flow.

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#5) On October 27, 2009 at 10:42 AM, walt373 (99.88) wrote:

Here is another link to the same article that doesn't require registration.

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