GMO: "There Is No Safe Place To Hide"

Tyler Durden's picture


From Jeremy Grantham's GMO:

We have been writing quite a bit about why asset allocation today is in one of the toughest investing environments we’ve ever encountered. And it’s not just because we think equity markets are overvalued. No, we’ve seen that plenty of times before over the past decade or so. Remember the technology bubble of the late ’90s? That was challenging, sure, but what got lost in the shuffle was that while U.S. large-cap stocks were outrageously overpriced, it turned out that real estate investment trusts, emerging equities, and international small caps were deliciously priced. And it was perfectly clear to us what we had to do: avoid technology and own the cheap stuff, even though it might have looked a bit unconventional. Then we entered the 2007–2008 credit bubble, and while, yes, virtually all equity markets were overpriced, it was perfectly clear to us what we had to do: hide and wait. And that was not a bad proposition because there were plenty of safe places to hide—Treasury Inflation-Protected Securities, U.S. Treasuries, and a strategy we had developed called Alpha Only—and earn a decent, if not spectacular, return.


Today’s environment, however, is quite distinct, as seen in the chart below, where we lay out the GMO seven-year forecasts in a volatility (an imperfect shorthand for risk) versus return format for the traditional asset classes, or betas. This beta desert is so challenging because not only are there no asset classes that we believe are priced to deliver 5% real return (the red line), there is also no safe place to hide and wait (the green circle).


*  *  *

Then again, who needs "safety" when the market's Chief Risk Officer, the Federal Reserve of course, will never allow another market correction and when any wholesale selloff from this endless no volume elevitation will result in a CYNKing of the market, where the entire market  is simply halted. Indefinitely.

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Wed, 08/20/2014 - 13:28 | 5120817 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

Not exactly the most liquid assets, but arable land and guns seem like a great place to be invested

Wed, 08/20/2014 - 13:45 | 5120948 Killer the Buzzard
Killer the Buzzard's picture

Lord Grantham!

Wed, 08/20/2014 - 16:07 | 5121725 Keyser
Keyser's picture

Bullish, BTFD... It's worked since 2009... 

Wed, 08/20/2014 - 13:45 | 5120957 Stormtrooper
Stormtrooper's picture

.308 sniper is a safe investment.  I'm ALL in!

Wed, 08/20/2014 - 13:47 | 5120963 espirit
espirit's picture

Glad I'm not suckling on a .gov or union retirement, as those guaranteed 7.5-8% rate returns are being smokescreened and underfunded.

Good times until they're not, sheeple.

Wed, 08/20/2014 - 13:54 | 5121003 Herd Redirectio...
Herd Redirection Committee's picture

The Pension Riots of 2016-2028

Wed, 08/20/2014 - 14:01 | 5121047 espirit
espirit's picture

It's going to be work, or you don't eat.

(citydwellers are gonna eat alot of lead)

Wed, 08/20/2014 - 15:04 | 5121440 t0mmyBerg
t0mmyBerg's picture

Thats it.  We moved out of Chicago llast year for this very reason.  We have a couple of friends there who are teachers and policemen and they are already getting screwed (told they wont get certain promised benefits, reorg of pension payments and so on) BEFORE any possible solution to the underfunded promises is even on the horizon and before it has become acute.  God knows what happens once it does become acute.  I know probably Pension Riots from 2016-2028.  Oh wait.......

Actually it will be some unsavory combination of reduced services and rising taxes and then riots.  But there will be a spiral down as the city, which has gentrified massively in the last 30 or so years since it was an absolute shit hole in the 70s like everywhere else, starts to de-gentrify and the gangs, which are for some reason absurdly tolerated there, move back in to reclaim what have become nicer areas.  So I moved to another state out to the country with many acres for garden and dogs and our own well and sewer, oh and a much more enlightened policy on gun ownership, as in unlimited.

Wed, 08/20/2014 - 16:10 | 5121732 Keyser
Keyser's picture

Which is part of the reason the Fed keeps the equities market inflated... To protect all those private pension funds that are accustomed to 8% return...


Thu, 08/21/2014 - 05:39 | 5124224 tonyw
tonyw's picture

yes, if/when/next time equities go down 20% all those pension funds will suddenly become deep deep under water.

Reading the headline i first thought it was about Genetically Modified Organisms, so I'm glad they're not everywhere yet.


Wed, 08/20/2014 - 14:18 | 5121155 MalteseFalcon
MalteseFalcon's picture

The underlying assumption here is that historical data and benchmarks matter.  They don't.  This time is different.  The FED will keep papering over until the dollar crashes versus other currencies.  Which currency?  Beats me.  They are all taking turns watering their currencies down.  Gold.  LOL.  Under control.  Completely.

Wed, 08/20/2014 - 13:29 | 5120823 Latina Lover
Latina Lover's picture

l'll bet that cans of beans, guns and unoccupied caves will yield superior returns.

Wed, 08/20/2014 - 13:33 | 5120848 cro_maat
cro_maat's picture

"unoccupied caves" - Those weren't safe in Afganistan. Not because we were looking of Bin Ladin but because with $5 Trillion in mineral wealth locked in the Afgan mountains, the best way to get at it was to blow the tops off with U.S. MIC weaponry. Bin Ladin was just the excuse to remove overburden.

Wed, 08/20/2014 - 13:30 | 5120827 cro_maat
cro_maat's picture

There are safe places to hide. Just not in this solar system.

Wed, 08/20/2014 - 16:10 | 5121737 Keyser
Keyser's picture

Lots of place to hide on this planet, but it's much like the job situation in the US... There are plenty of jobs, just no one qualified or willing to do them... 


Wed, 08/20/2014 - 13:32 | 5120840 vegan
vegan's picture

Funny... I'm not seeing "Gold" or "Silver" listed in the chart...


Wed, 08/20/2014 - 13:37 | 5120892 ZeroPower
ZeroPower's picture

If you like your PMs you can keep your PMs.

Wed, 08/20/2014 - 13:50 | 5120969 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Keep your Prime Ministers yes

Wed, 08/20/2014 - 15:40 | 5121534 Kirk2NCC1701
Kirk2NCC1701's picture

If you like your sycophant scumbag PM & Torries, you can keep your sycophant scumbag PM & Torries.

The smegma-licking bozo Harper makes Mulroney look good.  If that were possible.

Wed, 08/20/2014 - 13:40 | 5120910 Da Yooper
Da Yooper's picture

They dont account for barbarous relic's

Wed, 08/20/2014 - 13:48 | 5120971 lasvegaspersona
lasvegaspersona's picture

Banks and hedgies and other funds need to concern themselves with nominal returns. They are not allowed to prepare for the unthinkable. You as an individual can and should.

Wed, 08/20/2014 - 14:02 | 5121055 indygo55
indygo55's picture

Yes that is strange. I was looking for the same thing.


Wed, 08/20/2014 - 17:22 | 5122074 BrosephStiglitz
BrosephStiglitz's picture

Or any commodities for that matter.

Wed, 08/20/2014 - 13:32 | 5120842 Dragon HAwk
Dragon HAwk's picture

I've been doing research on  CFCG....  Celar Full of Canned Goods...

Wed, 08/20/2014 - 15:55 | 5121683 Kirk2NCC1701
Kirk2NCC1701's picture

Actually, all sarcasm and joking aside, and given the real price inflation we are seeing for food and certain consumable/durable goods, you are FAR better off "investing" in them (building inventory, to create your own Costco-at-home), than donating it to Wall Street's army of CFPs.

Just before the Russian embargo, I stocked up on top-shelf, genuine Russian Vodka -- not that Smirnoff crap or that Stoli crap from the NATO-colonies in the Baltic states.  Ditto for Russian arms and ammo.  They will have a much better ROI (and Return OF Assets) than the fiat paper-ware from DC or NY.

STACK, PACK and RACK! Bitchez.  And keep building strong local communities: You'll be safer, more resilient and happier.

Wed, 08/20/2014 - 13:33 | 5120849 seek
seek's picture

All by design. "Saving" the banks by recapitalizing them with skim from profits in products investors are forced into or through inflation if they choose to hold cash. We're in NIRP, not ZIRP. -- look at the real returns on just about everything.

And even with negative rates, velocity is collapsing.

This does not end well. It never does when they take this path.

Wed, 08/20/2014 - 13:50 | 5120980 centerline
centerline's picture

Pension funds just might be what takes it all down.  Stock is gone.  What we are running on now is flow.  When flow so much as hiccups, it is game over.

And, just like any business running a perpeptual loss, it is just a matter of time.

Wed, 08/20/2014 - 16:18 | 5121760 Kirk2NCC1701
Kirk2NCC1701's picture

Given Service Fees for most bank accounts, you're better off keeping/saving most of the cash at home, and a checking account at a Credit Union.

Used Debit cards instead of Credit cards, if you are sincere about not contributing to the FRB* - since every Credit charge adds to the FRB* system, which means that you are no different than bankers insofar they are letting you "Create money out of thin air" with the "line of credit" your card has.  Debit cards, OTOH, are like electronic cash.  If you just can't deal with old-fashioned cash anymore.

* Fractional Reserve Banking

Wed, 08/20/2014 - 13:36 | 5120876 TeethVillage88s
TeethVillage88s's picture

Desert seems good word for US Intellect in Governing.

Repost: True the Fed is big time systemic Corruption and "Dissipation".

But the whole System of System are dragging us down mainly since Corporations & Money can "NOT" be Patriotic or act for the Benefit of the USA or the World (we are trans-national now).

- Capital Flight
- Brain Drain From Industry
- Federal Lobbying for Corporate Subsidies & Tax Breaks
- Off Shore Corporate Tax Havens
- Compensation Schemes like Deferred Wages
- Fed Policies that Directly Link to Paper Investments, Paper Transactions, Rentier Behavior, Exporting US Dollars to other Trade Markets, Casino type Investments rather than Brick & Mortar or Capital Expansion
- US Congressional Financial Conflict of Interest every Day
- No Integrity in Financial Ratings in USA
- No Integrity in US Accounting Standards
- No Standard Financial Instruments
- Lobbying for anything w/ PACs for Anything
- LBO that lead to Decapitalization & Jobs Losses & Collapse of Business Entities
- Decapitalization not being recognized as Deflationary & Weakness in the Economy
- Increases in Social Program Enrollment & Reliance not being recognized as Weakness in the Economy & Governance of USA
- Credit & Derivative Linkages recognized as Weakness in Banking, Economy, Stability & Governance
- Fake, Narrow, Corrupt, low Utility Government Statistics in GDP, Inflation, Unemployment, Social Stability, Future Tax Base, Future Consumption, Etc
- Fake Narrative of the Cost of War, Financial Health of Nation, $17.6 Trillion in Federal Debt, Low Velocity of Money, Eroding Demographics, and meaning of $59 Trillion in Total US Debt

Yeah, I forgot a few... Feel free to add

Military Concepts of Emergency Planning is very useful here in Economics as well. In particular I am concerned with Commodities, things that are limited and subject to Market Shocks:

- Water Utilities
- Waste Treatment
- Power, Electric Grid
- Communications
- Transportation for the public between work, home, and Markets
- Agricultural Basics
- Meat, Fish, Poultry
- gasoline, Diesel

The US Utility Act in the Depression created this idea that Government could help prevent Severe Economic Shocks. Partly it was humanitarian... The 1970s Gas Crisis may have been a result of going off the Gold Standard, but I am not sure. A gas crisis, our living history, tells the truth about Economic Shocks.

National Stock Piles is a solution to this. Whether you agree to a Government Refinery of Gasoline or Subsidies for Crops is a matter of Opinion.

PUHCA was one of a number of trust-busting and securities regulation initiatives that were enacted in response to the government investigations of the Wall Street Crash of 1929 and ensuing Great Depression, which included the collapse of Samuel Insull's public utility holding company empire. By 1932, the eight largest utility holding companies controlled 73 percent of the investor-owned electric industry.[2] Their complex, highly leveraged, corporate structures were very difficult for individual states to regulate.

Wed, 08/20/2014 - 14:04 | 5121068 Ban KKiller
Ban KKiller's picture


Wed, 08/20/2014 - 15:21 | 5121554 debtor of last ...
debtor of last resort's picture

That's where QEbola comes in.

Wed, 08/20/2014 - 13:37 | 5120893 ebworthen
ebworthen's picture

How about if I move to Russia?

Wed, 08/20/2014 - 14:20 | 5121168 Chuck Knoblauch
Chuck Knoblauch's picture

Will they take you?

Wed, 08/20/2014 - 15:23 | 5121560 Kirk2NCC1701
Kirk2NCC1701's picture

I'm thinking of applying for the Assistant Chief Prosecutor in Crimea.

I'd be willing to work under its Chief Prosecutor, Miss Poklonskaya.  Don't know how good the pay is, but I hope the fringe benefits are good.  ;-)

Wed, 08/20/2014 - 13:39 | 5120897 kito
kito's picture

jeremy "we will not see new highs in the s&p in our lifetime" grantham........hahahahaha.....another smart one who got his ass kicked by the bernank.......

Wed, 08/20/2014 - 13:48 | 5120970 huggy_in_london
huggy_in_london's picture

"Core market meltdown in ... 13 minutes..... beep...."

Wed, 08/20/2014 - 14:30 | 5121239 kito
kito's picture


Wed, 08/20/2014 - 13:41 | 5120921 taketheredpill
taketheredpill's picture






Seriously, they left Timber off the chart.  They give it a 5.4% 7-yr forecast on their website....

Wed, 08/20/2014 - 13:49 | 5120977 ShrNfr
ShrNfr's picture

He has been stuck on Timber for over 15 years now. Owning some of it is ok, but owning lots of it is asking for trouble.

Wed, 08/20/2014 - 13:53 | 5121000 Jack Sheet
Jack Sheet's picture

What is the r-squared value of that regression line?
(the degree of variability explained by the "model" as opposed to random scatter? )I would guess 0.15 max.

Whst is the p-value? I would guess >0.1

Wed, 08/20/2014 - 14:03 | 5121057 q99x2
q99x2's picture

That's right. The fascists at the FED do intend to halt it eventually. Think of what they are keeping it going for as a means to what they are preparing to do?

Best swat team their asses right now and haul them off to jail.

Wed, 08/20/2014 - 14:21 | 5121149 Chuck Knoblauch
Chuck Knoblauch's picture

We need a deck of playing cards for Banksters.

All the Aces will represent past and current Fed members.

I think you can guess who they are.

Hearts is reserved for last.

Wed, 08/20/2014 - 14:30 | 5121242 realWhiteNight123129
realWhiteNight123129's picture

Where is Gold in the "Safe place to hide" chart? Hidden?

Wed, 08/20/2014 - 15:38 | 5121591 Kirk2NCC1701
Kirk2NCC1701's picture

Actually, thanks to Simon Black's Offshore Workshop 2013, I invested with one of the opportunities in the Emerging Equities category, and already got >10%.

So... FUCK YOU, WALL ST!  And your army of CFPs.  I'm not investing a single dime in USSA -- not until after the Big Reset, and the USD gets its ass kicked and dethroned as the GRC.

p.s. Given the nature and location of my investment, I feel a lot safer about it than keeping it at the bank.  So, double fuck you!

Wed, 08/20/2014 - 16:01 | 5121706 gnomon
gnomon's picture

Our future? The Roman Forum, circa 700 AD.

Wed, 08/20/2014 - 16:14 | 5121743 Keyser
Keyser's picture

Don't you mean in the Roman Coliseum, with the lions? 

Wed, 08/20/2014 - 16:20 | 5121768 Kirk2NCC1701
Kirk2NCC1701's picture

Circa 700 AD, the Coliseum turned into a pasture

In <50 years (or at some point), DC will revert to a swamp.

Wed, 08/20/2014 - 16:17 | 5121751 dizzyfingers
dizzyfingers's picture

Future? What's a future?

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