James Montier Blasts All Pundits Who Say To Buy Stocks When Bonds Are "Unattractive"

Tyler Durden's picture

James Montier, formerly at SocGen, and now at GMO, has released his latest white paper which shares his seven "immutable" laws of investing which are as follows: 1. Always insist on a margin of safety; 2. This time is never different; 3. Be patient and wait for the fat pitch; 4. Be contrarian; 5. Risk is the permanent loss of capital, never a number; 6. Be leery of leverage; 7. Never invest in something you don’t understand. Of course, these are nothing new to anyone who trades on anything besides simple momentum (a strategy which always inevitably leads in massive capital loss). Yet the one observation we are delighted to read in Montier's letter is his relentless bashing of all pundits who claims that when bonds are unattractive one should buy stocks (that would be everyone on CNBC among others). His explanation "One of the “arguments” for owning equities that we regularly encounter is the idea that one should hold equities because bonds are so unattractive. I’ve described this as the ugly stepsisters’ problem because it is akin to being presented with two ugly stepsisters and being forced to date one of them. Not a choice many would relish. Personally, I’d rather wait for Cinderella to come along. Of course, the argument to buy stocks because bonds are appalling is really just a version of the so-called Fed Model. This approach is fl awed at just about every turn. It fails at the level of theoretical soundness as it compares real assets with nominal assets. It fails empirically as it simply doesn’t work when attempting to predict long-run returns (never an appealing trait in a model). Moreover, proponents of the Fed Model often fail to remember that a relative valuation approach is a spread position. That is to say that if the Model says equities are cheap relative to bonds, it doesn’t imply that one should buy equities outright, but rather that one should short bonds and go long equities. So the Model could well be saying that bonds are expensive rather than that equities are cheap! The  Fed Model doesn’t work and should remain on the ash heap." Alas, with "career risk" the one and only factor that matters, nobody will likely read let alone take these rules seriously until it is once again too late.

The famous chart posted many times previously on Zero Hedge showing the very abnormal market during the time of the Great Moderation.

Full must read letter:

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rocker's picture

This is funny. Not one stock from the U.S. currently on the Value Screen.  Yeooowww.

M2Market's picture

I shall have a t-shirt made, once side says "Drink until she is cute" and the other side says "print until stock looks good"

Miss Expectations's picture

Reminds me of a friend in college.  A group of us had gone out drinking and my friend left the bar with a very unattractive girl.  I spoke to him a few days later and he told me when he woke up the next morning she was laying on his arm.  He said luckily she rolled over because he was prepared to chew his arm off.

Nacho.Libre's picture

How fortunate for him!  My college friend wasn't so lucky.  Not only did he have to gnaw his arm off to get away before she woke up, but she was so unattractive that he gnawed off his other arm just in case she went looking for a one armed man!

Nikao7's picture

Ya,  we call it Coyote Arm around these parts lol

RobotTrader's picture

Banks were super strong all day.

So was EEM and FXI.

If we get follow through tomorrow, all the CANSLIM boys will be jumping back into the pool.

rocker's picture

KBE index looks like it topped out today.  Down tomorrow. 

Milton Waddams's picture

Eleven days since the major indices last printed a new high for the move. A couple more days of this and the economy might tip into a vicious depression.

Cdad's picture

Simply stunning today...the pathological lies pouring forth from the MSM, pimped by the criminal syndicate known as Wall Street. 

I guess change will only come when the hyperinflation comes and the riots begin, because today's "show" was simply ridiculous, a show for the lowest common denominator, I guess.

Brinkers at three year highs?  What, to match the unemployment rate?  Is that the correct algo there?

Banks "normalized"?  Huh?  They are insolvent!

Another unbelievable session...surely to be unwound within hours.

10kby2k's picture


8.  BTFD

9.  BTFR

JohnG's picture

Then it's time to bail.

The closer we get to QE2 "ending" the more it will be important to watch for even a stealth QE3.  If we don't get that (we will imho), then it's time to bail faster.

rocker's picture

Closed 75% of all positions today, including miners which I was overweight. Do not like the tape on miners either. Looks like the CBs are attacking heavy positions today. Check out FNSR after hours. Not good for the Nasdaq tomorrow. And we have not even had the "day of rage" yet.

10kby2k's picture


The masses are just recovering from what they thought was a permenant loss of capital. Even the most ardent bulls i know use the 'recovery' word and then immediately do a double take realizing they haven't felt it .....  only read about it.

When I was bullish (long ago) I would thumb through the sectors to see the worst performing and blindly put new capital in them.

I'm considering some nat gas.

DoctoRx's picture

Nat gas is indeed bottoming.  But that reminds me of a joke from the 1990s, when there was a long depression in that sector called the "gas bubble".  A gas producer exec asked God:  "When will the gas bubble end?"  God replies:  "Not in my lifetime."

mynhair's picture

10.  DTFB  (drink that fucking beer)

11.  DBTJ  (don't bogart that joint)

John Law Lives's picture

"Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population..."


Cdad's picture

Speaking of pathological liars, B. Moynihan is doing a piss poor job of snowing M. Bartiromo on the Blow Horn just now.  Some guys are just not that good at bullshit.  How this clown even got his gig is beyond me.  However, it's just good enough as M. Bartiromo's intellectual curiosity died a couple years back. 

He just said, "Peace dividend."  Who's at peace?

kaiserhoff's picture

No, he said permanent peace dividend.  I want some of what he is smoking.

Cdad's picture

J. Teranova of Fast Money picking up the ball and running with it, referring to a "sell off" in oil.  I must have missed something, as oil lost exactly $.66 per barrel?

When will Comcast actually take action to restore even an ounce of credibility at their new network?

Sell off?  What f'n sell off?

edmondantes's picture

I am not sure if ZH is slightly missing a trick here.  If I understand correctly the thesis is that money is being printed and this money is being used to buy stocks... to manipulate the market, to support prices...and the compliant is that the level of the stock market is somehow wrong, somehow fraudulent... which no doubt from a 'fundamental' standpoint it is. But if I were able to print money I think it would be rational (as the recipient) to buy 'real' assets like stocks with the printed money... indeed if I knew the future was hyperinflation and the destruction of the printed money I was receiving I would buy as many stocks and other assets the own or representing physical property as I could...  it is not as good as buying real physical assets like gold or silver (which will do better in hyperinflation) but given that it is free money it is not bad.  As Faber said recently if you bought Siemens before hyperinflation at the end even if you didn't do as well as holding gold you still had something - ownership of an asset.  The bondholders had nothing.  These are the people who will really be wiped out: the bondholders.  

So in considering this thesis the key questions are really: 1. which corporate vehicles are the recipients of the free printed money that are using this printed money to accumulate huge stock positions? 2. who are the cretins who are going to end up holding the bonds outright?

A Man without Qualities's picture

The greatest scam Wall Street ever pulled was to convince investors that stocks are real assets.  


Rainman's picture

....the same con pops up about every 80 years or so.....when the previous marks are finally all dead.

pitz's picture

If you bought the S&P500 on margin starting in the middle of 2009, you've done very well, even though the S&P500 has gone nowhere when measured in gold. 

rocker's picture

It's good to have albert at Zero Hedge.  Welcome all.

bad craziness's picture

For the love of god please stop this scribd takeover of the world.  Its like an old slug gun - slow to load and just annoying.  Where possible please give us a link to the PDF. Thanks

Sherman McCoy's picture

Nice to see Montier has a job. Has he made any money, you know, lately? Why doesn't ZH post info from anybody who knows how to make money?