The foie gras bubble
James Montier of GMO is the subject of the latest Welling on Wall Street newsletter, a weekly long-form interview conducted by Kate Welling.
Montier, ever the bear, doesn’t like the negative expected return environment we’re in. He thinks we’ve learnt little from the crisis and that one the biggest risks is that the market isn’t being adequately compensated for the risk it’s being forced to take.
We can’t duplicate too much of the interview here, but consider the following something of a teaser. The questions (in bold) are being posed by Welling:
So much went horribly wrong, as you foresaw, and yet investment returns last year, to gauge by the major indices, were quite decent.
That’s what’s so terrifying.
Because we haven’t learned a thing?
It appears not. On that score there is a great quote from Jeremy Grantham, which I really love — When he was asked what people would learn from the whole financial crisis, Jeremy said, “In the short term a lot, in the medium term a little, in the long term, nothing at all. That would be historical precedent.”But I think what has surprised us all is how incredibly short the long term proved to be. It is just breathtaking to me how quickly we’ve gone back into this — what I describe as kind of a fois gras [sic] bubble environment.
A fois gras bubble [sic]?
Yes, because we’re all being force fed risk assets. It’s an unpleasant experience, when you’re playing goose to the central bank’s farmer. It’s just not fair. It’s a really odd situation to find yourself in, and to know how to deal with it is one of the real challenges. I have even described this as the toughest time in which to be an asset allocator — primarily because nothing is cheap....MORE
