Jeremy Grantham’s 1Q09 Letter: Fantastic as usual

[patientrenter]

[quote=paramount]TG: You may very well get that chance again…

Has there really been a fundamental change?

Slightly less “preliminary” unemployment numbers?

The gov’t hired 70k Census workers…BFD, gov’t jobs aren’t all that helpful anyway.

Until jobs start coming from the private sector, it’s all manipulated and phony.

Even Newt Gingrich basically stated that yesterday in a Sunday morning news show.

[/quote]

And Mr Grantham already factors the underlying weaknesses in our economy into his forecasts. That’s why he thinks the recovery will be VL. A small bounce now, and then a long grind without much sunshine. But he thinks markets will over-react, and zoom up over the rest of the year, and then only slowly deflate in small steps over the next seven or so years that will likely not retrace the low of March any time soon.

Read it. It’s worth the time.

[equalizer]

John P. Hussman of the Hussman Funds also has weekly economic commentary. Like Grantham, he has deep respect for financial history, bubbles, fair value, etc. His two funds are hedged and have good returns with low risks.
Hussman was a professor of economics and international finance at the University of Michigan. In the mid-1980’s, Dr Hussman worked as an options mathematician for Peters & Company at the Chicago Board of Trade.

“Banks Pass Stress Test – Regulators Fail Ethics Test” by John P. Hussman, Ph.D. May 11, 2009

“Even if we have observed the ultimate lows of this downturn (which I would not take as given), it does not follow that the decline we’ve observed over the past 18 months will be progressively recovered without a great deal of intervening difficulty. The S&P 500 has retraced just over 25% of its bear market loss. The 904 level on the S&P 500 was a 25% retracement, and 977 would be a 1/3 retracement, which is not unreasonable. Aside from such retracements, the idea of a “V-shaped” recovery in the market is strongly odds with “post-crash” market behavior, which generally features a long and drawn-out flat period for years afterward. Given the enormous overhang of Alt-A and option-ARM resets scheduled to begin later this year, extending into 2012, such a profile would not be surprising in the present case.

To put the current downturn into similar context, the chart below overlays several historical crashes, with the time scale measured in months. The downturns include the Great Depression (purple), the Japanese Nikkei index which peaked in 1989 (blue), the gold market which peaked in 1980 (green), and the S&P 500 which peaked in 2007 (red).
…”

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[equalizer]

John P. Hussman of the Hussman Funds also has weekly economic commentary. Like Grantham, he has deep respect for financial history, bubbles, fair value, etc. His two funds are hedged and have good returns with low risks.
Hussman was a professor of economics and international finance at the University of Michigan. In the mid-1980’s, Dr Hussman worked as an options mathematician for Peters & Company at the Chicago Board of Trade.

“Banks Pass Stress Test – Regulators Fail Ethics Test” by John P. Hussman, Ph.D. May 11, 2009

“Even if we have observed the ultimate lows of this downturn (which I would not take as given), it does not follow that the decline we’ve observed over the past 18 months will be progressively recovered without a great deal of intervening difficulty. The S&P 500 has retraced just over 25% of its bear market loss. The 904 level on the S&P 500 was a 25% retracement, and 977 would be a 1/3 retracement, which is not unreasonable. Aside from such retracements, the idea of a “V-shaped” recovery in the market is strongly odds with “post-crash” market behavior, which generally features a long and drawn-out flat period for years afterward. Given the enormous overhang of Alt-A and option-ARM resets scheduled to begin later this year, extending into 2012, such a profile would not be surprising in the present case.

To put the current downturn into similar context, the chart below overlays several historical crashes, with the time scale measured in months. The downturns include the Great Depression (purple), the Japanese Nikkei index which peaked in 1989 (blue), the gold market which peaked in 1980 (green), and the S&P 500 which peaked in 2007 (red).
…”

Homepage

[equalizer]

John P. Hussman of the Hussman Funds also has weekly economic commentary. Like Grantham, he has deep respect for financial history, bubbles, fair value, etc. His two funds are hedged and have good returns with low risks.
Hussman was a professor of economics and international finance at the University of Michigan. In the mid-1980’s, Dr Hussman worked as an options mathematician for Peters & Company at the Chicago Board of Trade.

“Banks Pass Stress Test – Regulators Fail Ethics Test” by John P. Hussman, Ph.D. May 11, 2009

“Even if we have observed the ultimate lows of this downturn (which I would not take as given), it does not follow that the decline we’ve observed over the past 18 months will be progressively recovered without a great deal of intervening difficulty. The S&P 500 has retraced just over 25% of its bear market loss. The 904 level on the S&P 500 was a 25% retracement, and 977 would be a 1/3 retracement, which is not unreasonable. Aside from such retracements, the idea of a “V-shaped” recovery in the market is strongly odds with “post-crash” market behavior, which generally features a long and drawn-out flat period for years afterward. Given the enormous overhang of Alt-A and option-ARM resets scheduled to begin later this year, extending into 2012, such a profile would not be surprising in the present case.

To put the current downturn into similar context, the chart below overlays several historical crashes, with the time scale measured in months. The downturns include the Great Depression (purple), the Japanese Nikkei index which peaked in 1989 (blue), the gold market which peaked in 1980 (green), and the S&P 500 which peaked in 2007 (red).
…”

Homepage

[equalizer]

John P. Hussman of the Hussman Funds also has weekly economic commentary. Like Grantham, he has deep respect for financial history, bubbles, fair value, etc. His two funds are hedged and have good returns with low risks.
Hussman was a professor of economics and international finance at the University of Michigan. In the mid-1980’s, Dr Hussman worked as an options mathematician for Peters & Company at the Chicago Board of Trade.

“Banks Pass Stress Test – Regulators Fail Ethics Test” by John P. Hussman, Ph.D. May 11, 2009

“Even if we have observed the ultimate lows of this downturn (which I would not take as given), it does not follow that the decline we’ve observed over the past 18 months will be progressively recovered without a great deal of intervening difficulty. The S&P 500 has retraced just over 25% of its bear market loss. The 904 level on the S&P 500 was a 25% retracement, and 977 would be a 1/3 retracement, which is not unreasonable. Aside from such retracements, the idea of a “V-shaped” recovery in the market is strongly odds with “post-crash” market behavior, which generally features a long and drawn-out flat period for years afterward. Given the enormous overhang of Alt-A and option-ARM resets scheduled to begin later this year, extending into 2012, such a profile would not be surprising in the present case.

To put the current downturn into similar context, the chart below overlays several historical crashes, with the time scale measured in months. The downturns include the Great Depression (purple), the Japanese Nikkei index which peaked in 1989 (blue), the gold market which peaked in 1980 (green), and the S&P 500 which peaked in 2007 (red).
…”

Homepage

[equalizer]

John P. Hussman of the Hussman Funds also has weekly economic commentary. Like Grantham, he has deep respect for financial history, bubbles, fair value, etc. His two funds are hedged and have good returns with low risks.
Hussman was a professor of economics and international finance at the University of Michigan. In the mid-1980’s, Dr Hussman worked as an options mathematician for Peters & Company at the Chicago Board of Trade.

“Banks Pass Stress Test – Regulators Fail Ethics Test” by John P. Hussman, Ph.D. May 11, 2009

“Even if we have observed the ultimate lows of this downturn (which I would not take as given), it does not follow that the decline we’ve observed over the past 18 months will be progressively recovered without a great deal of intervening difficulty. The S&P 500 has retraced just over 25% of its bear market loss. The 904 level on the S&P 500 was a 25% retracement, and 977 would be a 1/3 retracement, which is not unreasonable. Aside from such retracements, the idea of a “V-shaped” recovery in the market is strongly odds with “post-crash” market behavior, which generally features a long and drawn-out flat period for years afterward. Given the enormous overhang of Alt-A and option-ARM resets scheduled to begin later this year, extending into 2012, such a profile would not be surprising in the present case.

To put the current downturn into similar context, the chart below overlays several historical crashes, with the time scale measured in months. The downturns include the Great Depression (purple), the Japanese Nikkei index which peaked in 1989 (blue), the gold market which peaked in 1980 (green), and the S&P 500 which peaked in 2007 (red).
…”

Homepage

[CA renter]

Excellent article, davelj. Thanks for posting it. Agree with pretty much everything he said, and really liked this:

We should particularly not
allow ourselves to be intimidated by the fi nancial mafi a
into believing that all of the failing fi nancial companies
– or very nearly all – had to be defended at all costs. To
take the equivalent dough that was spent on propping
up, say, Goldman or related entities like AIG (that were
necessary to Goldman’s well being), as well as the many
other incompetent banks and spending it instead on really
useful, high return infrastructure and energy conservation
and oil and coal replacement projects would seem like a
real bargain for society. Yes, we would certainly have had
a very painful temporary economic hit from fi nancial and
other bankruptcies if we had decided to let them go, but
given the proven resilience of economies, it would still
have seemed a better long-term bet. But, as I said, this
is all just speculative theory and I don’t have to deal with
Congress.
——————

I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.

[CA renter]

Excellent article, davelj. Thanks for posting it. Agree with pretty much everything he said, and really liked this:

We should particularly not
allow ourselves to be intimidated by the fi nancial mafi a
into believing that all of the failing fi nancial companies
– or very nearly all – had to be defended at all costs. To
take the equivalent dough that was spent on propping
up, say, Goldman or related entities like AIG (that were
necessary to Goldman’s well being), as well as the many
other incompetent banks and spending it instead on really
useful, high return infrastructure and energy conservation
and oil and coal replacement projects would seem like a
real bargain for society. Yes, we would certainly have had
a very painful temporary economic hit from fi nancial and
other bankruptcies if we had decided to let them go, but
given the proven resilience of economies, it would still
have seemed a better long-term bet. But, as I said, this
is all just speculative theory and I don’t have to deal with
Congress.
——————

I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.

[CA renter]

Excellent article, davelj. Thanks for posting it. Agree with pretty much everything he said, and really liked this:

We should particularly not
allow ourselves to be intimidated by the fi nancial mafi a
into believing that all of the failing fi nancial companies
– or very nearly all – had to be defended at all costs. To
take the equivalent dough that was spent on propping
up, say, Goldman or related entities like AIG (that were
necessary to Goldman’s well being), as well as the many
other incompetent banks and spending it instead on really
useful, high return infrastructure and energy conservation
and oil and coal replacement projects would seem like a
real bargain for society. Yes, we would certainly have had
a very painful temporary economic hit from fi nancial and
other bankruptcies if we had decided to let them go, but
given the proven resilience of economies, it would still
have seemed a better long-term bet. But, as I said, this
is all just speculative theory and I don’t have to deal with
Congress.
——————

I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.

[CA renter]

Excellent article, davelj. Thanks for posting it. Agree with pretty much everything he said, and really liked this:

We should particularly not
allow ourselves to be intimidated by the fi nancial mafi a
into believing that all of the failing fi nancial companies
– or very nearly all – had to be defended at all costs. To
take the equivalent dough that was spent on propping
up, say, Goldman or related entities like AIG (that were
necessary to Goldman’s well being), as well as the many
other incompetent banks and spending it instead on really
useful, high return infrastructure and energy conservation
and oil and coal replacement projects would seem like a
real bargain for society. Yes, we would certainly have had
a very painful temporary economic hit from fi nancial and
other bankruptcies if we had decided to let them go, but
given the proven resilience of economies, it would still
have seemed a better long-term bet. But, as I said, this
is all just speculative theory and I don’t have to deal with
Congress.
——————

I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.

[CA renter]

Excellent article, davelj. Thanks for posting it. Agree with pretty much everything he said, and really liked this:

We should particularly not
allow ourselves to be intimidated by the fi nancial mafi a
into believing that all of the failing fi nancial companies
– or very nearly all – had to be defended at all costs. To
take the equivalent dough that was spent on propping
up, say, Goldman or related entities like AIG (that were
necessary to Goldman’s well being), as well as the many
other incompetent banks and spending it instead on really
useful, high return infrastructure and energy conservation
and oil and coal replacement projects would seem like a
real bargain for society. Yes, we would certainly have had
a very painful temporary economic hit from fi nancial and
other bankruptcies if we had decided to let them go, but
given the proven resilience of economies, it would still
have seemed a better long-term bet. But, as I said, this
is all just speculative theory and I don’t have to deal with
Congress.
——————

I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.

[jpinpb]

[quote=CA renter]I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.[/quote]

Agree.

[jpinpb]

[quote=CA renter]I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.[/quote]

Agree.

[jpinpb]

[quote=CA renter]I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.[/quote]

Agree.

[jpinpb]

[quote=CA renter]I think we missed our chance to do some exceptionally good things with all the money that was wasted on the financial industry.[/quote]

Agree.

[Author]

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