Jeremy Grantham’s Investing Outlook for 2011, and Beyond

Jeremy Grantham founder of Boston-based asset manager and mutual fund firm GMO, has published his investing outlook for 2011.

As usual it’s great fun to read and full of things to worry about. Here, for example, are his  “Things that Really Matter in 2011 and Beyond (in one person’s view) for Investments and Real Life”:

  • Resources running out, putting strong but intermittent pressure on commodity prices
  • Global warming causing destabilized weather patterns, adding to agricultural price pressures
  • Declining American educational standards relative to competitors
  • Extraordinary income disparities and a lack of progress of American hourly wages
  • Everything else.

Grantham also makes some more specific predictions for 2011, including a continuing preference in the markets for “everything risky,” a phenomenon also commented on by Paul Rabbitt of Rabbitt Analytics in our recent Investment Advisor Roundtable. Grantham warns that these risky investments — including small company stocks and those of lower quality companies — are among the most overvalued options in generally overvalued markets. Still with rates so low, he expects the market will continue strong for several more months at least. US quality stocks he calls with faint praise “the least overpriced equities”.

Grantham urges caution in emerging markets, writing “To make money in emerging markets from this point, animal spirits have to stay strong and not much can go wrong. This is possibly the last chapter in a 12-year love affair…from now on, we must be more careful.”

Also echoing part of our Roundtable discussion, particularly the views of Christian Wagner of Longview Capital Management, Grantham likes resource stocks, “stuff in the ground,” as long-term plays. He especially highlights forestry and “good agricultural land”. He is clearly worried, though about the possibility of major commodity price rises tripping up emerging countries, though not the U.S.

As an addendum to this outlook piece, he includes a speech he gave on investing bubbles at Columbia University in 2009. Grantham is overseeing a massive study of bubbles and has so far found a remarkable 320 completed bubbles.

To read the full report, and other thought-provoking pieces by Grantham and his team, register at GMO’s website and then go to “Research & Commentary”.

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