Cheney's Money Manager, Grantham: "EVERY Global Asset In BUBBLE; 1st Time in History"

Discussion in 'Wall St. News' started by ByLoSellHi, Apr 28, 2007.

  1. Yep, real estate, stocks, commodities - EVERYTHING. He says this is the first GLOBAL ASSET BUBBLE in the history of the world.

    Jeremy Grantham: All the World's a Bubble


    By Brett Arends
    Mutual Funds Columnist
    4/27/2007 10:07 AM EDT
    Click here for more stories by Brett Arends

    How high will the Dow go? 15,000? 20,000?

    How about 36,000?

    While euphoria sweeps stock markets here and worldwide, there are at least a few voices of dissent.

    One, unsurprisingly, is legendary value investor Jeremy Grantham -- the man Dick Cheney, plus a lot of other rich people, trusts with his money. Grantham, chairman of Boston firm Grantham Mayo Van Otterloo, has been a voice of caution for years. But he has upped his concerns in his latest letter to shareholders. Grantham says we are now seeing the first worldwide bubble in history covering all asset classes.

    Everything is in bubble territory, he says.


    "'The bursting of this bubble will be across all countries and all assets.' -- Jeremy Grantham"

    "From Indian antiquities to modern Chinese art," he wrote in a letter to clients this week following a six-week world tour, "from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time!"

    "Everyone, everywhere is reinforcing one another," he wrote. "Wherever you travel you will hear it confirmed that 'they don't make any more land,' and that 'with these growth rates and low interest rates, equity markets must keep rising,' and 'private equity will continue to drive the markets.' "

    As Grantham points out, a bubble needs two things: excellent fundamentals and easy money.

    "The mechanism is surprisingly simple," he wrote. "Perfect conditions create very strong 'animal spirits,' reflected statistically in a low risk premium. Widely available cheap credit offers investors the opportunity to act on their optimism."

    And it becomes self-sustaining. "The more leverage you take, the better you do; the better you do, the more leverage you take. A critical part of a bubble is the reinforcement you get for your very optimistic view from those around you."

    It's something to think about the next time you hear someone tell you that the stock market will keep rising simply because the world economy is doing so well. That would make sense only if we were paying a constant price for each unit of world GDP, instead of higher and higher prices for one slice of that GDP -- equity.

    Grantham concludes that every asset class is expensive today compared with historic averages and compared with the cost of replacing it. By his calculations, the only assets likely to beat inflation by any significant margin if you hold them for the next seven years are managed timber, "high-quality" U.S. stocks, and bonds.
  2. Yup!

    Not new news however. Several people have been discussing this for the last 6 months or so. Gonna be really really ugly once they start popping.

    Pumping liquidity nonstop for 6 years does have its downside. Eventually.
  3. Think about why...

    This is the also the first time in history that all the world's currencies were made out of paper and the reserve currency was losing its position.

    You can't just melt down the "bad" money and reforge it into "good" money when its paper or just digits on a computer screen.

    So where to run? Anywhere but paper money, whatever country its origin, because they are ALL being printed like so much toilet tissue as each country tries to remain competitive to gain export jobs and discourage import job losses.