Op-Ed: From Uber-Bear to Cautious Bull
A closer look at the Grantham turnaround.
I think Jeremy Grantham deserves congratulations for changing his position from super-bearish to cautiously bullish. Flexibility of mind is quite uncommon amongst the bear crowd. The bear crowd tends to be wedded to apocalyptic ideas for ideological reasons and rarely exhibit the capacity of seeing the bullish possibilities. Clearly, Grantham has distinguished himself from that crowd in his May letter to shareholders.
Having said that, I do not particularly share Professor Zucchi's enthusiasm for the overall content of Grantham's essay. However, two of Grantham's main points are ones that we coincide on:
1. Stimulus tends to work in terms of jump starting growth, so it is unwise to bet against it.
2. Investors are, in general, way over invested in cash and far under invested in equities. Thus, there is great potential for a buying panic to send the market to unimagined heights. Grantham seems to think that 1,100 could be such a level.
According to my own valuation work, 1,100 merely represents the midpoint of the "normal" valuation range for the S&P 500. Thus, 1,100 is merely within the range of my base case scenario for this rally. In a "buying panic" scenario such as Grantham hypothesizes, according to my analysis, the S&P could rise to 1350 or above.
One reservation I have about the Grantham essay is that he attempts to take credit for spotting the low in March citing an article entitled "Reinvesting When Terrified," that he posted in March. He then apologizes for not having published his current article a couple of months ago saying he was simply too busy. This is a bit disingenuous, in my view. First of all, in "Reinvesting When Terrified," Grantham never said he was buying nor did he suggest that people should buy.
In the article, he merely says that people need to have a game plan to eventually buy and that his firm had a contingency plan to buy if the market went lower. Second, in his most recent article (that he suggests he would have published a couple of months ago but was too busy), Grantham admits that his portfolio has been extremely underweight equities during the past two months and that it is still substantially underweight. So, if he really "called the bottom" as he suggests, then he sure didn't put his money where his mouth is. Suggesting you called the bottom and explaining to investors why you are still very underweight after a 30%+ rise in the market simply doesn't pass the giggle test.
So, kudos to Grantham for being flexible. That would have been more than enough to earn my respect. However, his retroactive "I called the bottom" claim is disappointing in that it is disingenuous.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter