Monday, October 13, 2008

Jeremy Grantham in Barron's

I'm seeing opportunity but Grantham is a sharp guy and his thinking is worth consideration. His comment on being early ties into a fear that informs my view, the possibility that an exogenous event could lead to another 40% decline. We're in equities and very skittish.

From Barron's:
Still Holding Back
AN INTERVIEW WITH JEREMY GRANTHAM: His warnings against risk-taking fell on deaf ears. Now he says the biggest mistake might be buying too soon.

FOR THREE YEARS, HE'S CAUTIONED INVESTORS TO AVOID RISK. Jeremy Grantham, chairman of institutional money manager GMO in Boston, was early, but eventually right.

Grantham told Barron's in February of 2006 that "housing is a classic bubble" and that "this feels like the end of a cycle." Known for his insights on global investing, Grantham, 70, co-founded GMO, which has a value framework combining quantitative and fundamental analysis. It oversees assets of about $120 billion.

For Grantham's latest views on the fallout from the financial crisis and what investment opportunities he sees, please read on.

Barron's: How much will the recent $700 billion bailout plan approved by Congress help stabilize the economy and the financial markets?

Grantham: It certainly doesn't hurt. It is an amazingly complicated situation. But I do believe we have passed the point where we have to worry about moral hazard. When Bear Stearns was in trouble, I used to worry about moral hazard.

What is your sense of how this crisis has been handled by those in charge?

It's been a haphazard response, and the next time something happens, you can't be sure what will happen. In one deal they protect the bonds, while in the next deal the bonds go. Then in the next deal they protect the foreign bonds but not the domestic bonds. My guess is that people will be nervous that they will be at the bad end of one of the tough deals, rather than one of the more gentle deals.

Everyone is shaking in their boots. The awareness of risk has come back with a terrifying surge, and it is not going to go away too quickly....MORE

HT: Infectious Greed