"An update from Jeremy Grantham"

From The Economist, April 10:

JEREMY GRANTHAM is an investor with 50 years of experience in the markets who is known for his caution about the outlook for long-term returns (he works for the GMO fund management group). But he caused a stir earlier this year when he said the chances were high of a melt-up in the markets this year.

Buttonwood caught up with him when he visited London this week and asked whether the recent volatility had changed his view. He does think that the odds of a melt-up have fallen. The acceleration stage of a bull market, as in 1928 and 1999, tends to be smooth and quick. The trade tensions evoked by President Trump could be very damaging.
He thinks that it is likely that, in five years, the American market may be 20% lower but this will not necessarily be via a sharp crash but through a series of advances and retreats.

The reason that the market has been doing well until now is the combination of low inflation and high profits; that explains why valuations are so high. US profits may have retreated from their peak (as a percentage of GDP) but will probably regain those highs by the end of the year. The puzzle is why profits have been high, and this may well be down to growing monopoly power in the corporate sector....MORE