Jeremy Grantham: Playing with fire, but stocks could race to old highs
by ilene - April 24th, 2010 5:40 am
Jeremy Grantham: Playing with fire, but stocks could race to old highs
Courtesy of Prieur du Plessis at Investment Postcards from Cape Town
Jeremy Grantham has become a familiar and very popular face on this site. For those treasuring his insight, wisdom and prescient calls, the co-founder and chief investment strategist of Boston-based GMO has just published the April edition of his quarterly newsletter entitled “Playing with Fire (A Possible Race to the Old Highs)”.
Here are a few excerpts from Grantham’s newsletter.
“So what do I think will happen? That’s easy: I don’t know. We have been spoiled in the last 10 years with many near certainties – mainly that real bubbles would break – but this is definitely not one of them. Not yet anyway. (However, I am still willing to play guessing games despite the fact that “I don’t know.” So here, as Exhibit 1, is my probability tree.)
“The general conclusion is that the line of least resistance is a market move in the next 18 months or so back to the old highs, say, 1500 to 1600 on the S&P, accompanied by an equivalent gain in most risk measures, followed once again by a very dangerous break. If that happens, rates will still be low and thus difficult to use as a jump starter, the financial system will still be fragile, and the piggybank will be more or less empty. It is remarkably silly for the Fed to allow, even encourage, this flight path. It is also remarkably silly for investors to be so carefree, given their recent experiences. Fortunately, there are several less likely outcomes that collectively,…