Wednesday, August 10, 2011

GMO's Jeremy Grantham's August 2011 Letter - Danger: Children at Play

While not an explicit market timer, Jeremy Grantham was quite prescient in his last quarterly letter [May 11, 2011: Time to Fight the Fed].  As with all his letters, there was a lot of good information outside of the realm of the market itself, and he continues in his latest.  This one begins with a focuse on the lack of leadership amongst the political class. Also quite a bit of talk about how the average American has suffered in terms of inflation adjusted wages for decades, while the tippy top of the income class has gotten all the rewards of massive producutvity increases.  (One wonders if what is happening in London is a precursor for far wider social unrest in the years to come as the have nots say 'enough is enough' to the haves)  [Dec 7, 2009: Citigroup 2006 - America, a Modern Day Plutonomy]  Of course we're still at the point in this country, where if you point out facts and ask why this has turned out in such a fashion, you are told you are engaging in class warfare.

Also some discussion on how corp profits are fat, while labor class is slapped on its face at our multinationals.... we've discussed these issues countless times the past four years.  Obviously no easy answers to these issues, and without any changes - and absent record government assistance (which have been in place the past three years) - consumption, excluding the top 15-20%, will have a very difficult time expanding.   Which is why we're having a 'demand' problem.

As for the market, he is giving the S&P 500 a 'worth' of only 950ish which obviously flies in the face of the major U.S. investment bank/Wall Street conglomerate which is in the 1350-1400+ range.

[click on fullscreen for easier read]

Grantham August

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