Jeremy Grantham Releases The Scariest Market Forecast Yet

Tyler Durden's picture

While we will leave readers alone when reading what the GMO head has dubbed the "shortest quarterly letter ever", we want to emphasize one point, namely Grantham's projection of how the market will perform in the next 10 years. The squeamish may want to look away: "No Market for Young Men.” Historians would notice that all major equity bubbles (like those in the U.S. in 1929 and 1965 and in Japan in 1989) broke way below trend line values and stayed there for years. Greenspan, neurotic about slight economic declines while at the same time coasting on Volcker’s good work, introduced an era of effective overstimulation of markets that resulted in 20 years of overpriced markets and abnormally high profit margins. In this, Greenspan has been aided by Bernanke, his acolyte, who has continued his dangerous policy. The first of the two great bubbles that broke on their watch did not reach trend at all in 2002, and the second, in 2009 – known by us as the first truly global bubble – took only three months to recover to trend. This pattern is unique. Now, with wounded balance sheets, perhaps the arsenal is empty and the next bust may well be like the old days. GMO has looked at the 10 biggest bubbles of the pre-2000 era and has calculated that it typically takes 14 years to recover to the old trend. An important point here is that almost no current investors have experienced this more typical 1970’s-type market setback. When one of these old fashioned but typical declines occurs, professional investors, conditioned by our more recent ephemeral bear markets, will have a permanent built-in expectation of an imminent recovery that will not come. For the record, Exhibit 1 shows what the S&P 500 might look like from today if it followed the average fl ight path of the 10 burst bubbles described above. Not very pretty."

And Exhibit 1:

And that is what one calls the pain of a three decade-long divergence from the mean, and its gradual reacquaintance with the trendline.

SAid otherwise, good luck to all buy and hold investors. For those looking for more than luck, here are Grantham's 4 summary investment recommendations:

  • Avoid lower quality U.S. stocks but otherwise have a near normal weight in global equities.
  • Tilt, where possible, to safety.
  • Try to avoid duration risk in bonds. For the long term they are desperately unattractive. Don’t be too proud (or short-term greedy) to have substantial cash reserves. Admittedly, this is the point where we at GMO try to be clever and do a little better than the minus 1% real from real cash – and, so far, with decent success.
  • I like (personally) resources in the ground on a 10-year horizon, but I am nibbling in very slowly because, as per my Quarterly Letter on resources in April 2011, I fear a major short-term decline in commodities based on a combination of less bad weather – which has been bad, but indeed less bad – and economic weakness,  especially in China. Prices have declined, often quite substantially, since that letter. However, I believe chances for further price declines in resources are still better than 50/50 as China and the world slow down for a while, and the weather becomes a bit more stable.

Full note (pdf):


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Mongo's picture

A.k.a flatline

idea_hamster's picture

I like the part of the projection that says:

* assuming 2.5% inflation

LMAO!  Good one!

sqz's picture

Shocking, but then I noticed the footprint:

* Assuming 2.5% inflation

With unlimited QE, EM growth and inelastic commodities, and inevitable long-term private debt creation policies, good luck with that! At most the foreceast scenario, based on historical real-estate post bubbles, can continue only up to 2014.

Comay Mierda's picture

this is what the general shape of the market will look like priced in GOLD! 2.5% inflation my ass, gold is the only true metric of inflation now


Comay Mierda's picture

btw, just received an update from

" Treasury Delays Release of Government’s GAAP-Based Financial Statements  Until Christmas Eve "

cant release this shit and cue more USAAA downgrades until after Consumermas

un-fucking-believable how much this government is full of shit


TruthInSunshine's picture


The movie is titled:

No Markets For Carbon Based, Non-Insider Information (Hank Paulson/Timmay tipped off) Fed Very Important Friends of the New York Branch of The Federal Reserve Bank

Also Released as:

The Bernank & Fractional Reserve Banking Alchemists Broke All Markets & Gave The Keys To The Printing Press to The Money Masters


The Bernank stars as Anton Chigurh, going around and shooting each and every market in the head with his air compressor gun.

CIABS's picture

tyler: thanks for the downloadable pdf instead of a doc of the execrable scribd sort.

CIABS's picture

regarding the content of the letter, i like grantham, but he needs to take a few more steps in the direction he has been going lately.  he ought to get beyond talking about "financial incompetence" and recognize it for what it is, and do the same with regard to the "appearance" we give of having become a plutocracy.

Ned Zeppelin's picture

OT, but is there a bad Cormac McCarthy novel? Suttree, the Border Trilogy, NCFOM, The Road. . . .  

akak's picture

I have only read "The Road", but after having done so, I have to ask: is there a GOOD one?

My God, that book was one of the very WORST novels I have ever read!

CIABS's picture

some think that Blood Meridian is the best.

Mr Lennon Hendrix's picture


The Road Less Traveled

Al Gorerhythm's picture

Agreed. Taking the advice of a ZH member, some time ago, I watched the movie. It was the most morbid movie I'd seen and decided if it ever descends to that, I'll take the wife's option.

akak's picture

Aside from the morbidly depressing theme, or even regardless of it, I found the book to be mind-numbingly tedious and achingly painful to read, with no background or explanation for the supposed all-consuming catastrophe that engulfed the world, catatonic characters speaking in monosyllabic babytalk, and highly implausible scenarios of relatively plentiful cannibals, years after the unrevealed disaster, living off of other humans living off of ... what?  The entire book was an insult to the intelligence.  Rarely have I read a book that I was so glad to finally finish --- and yet so disgusted that I had wasted the time to do so.

Heyoka Bianco's picture

The Road sucked. Easily his worst book, so of course Oprah chose it for her list. We can only hope that some hapless hausfraus picked up Outer Dark or Blood Meridian and are still in catatonic states after the first pages. Maybe one of them even made it as far as the tree of dead babies. Dare to dream, eh? Eh?


All progressions from a higher to a lower order are marked by ruins and mystery and a residue of nameless rage.

vast-dom's picture

It looks pretty optimistic to me! Seriously! And that SP chart needs to be shifted back-- oh wait-- maybe not-- but my 850 calcs said Sept into Oct of this year.........fuck me this looks peachy fucking keen relative to actual as in real world FUNduhMenTaLs.


I'm a buy and hold short investor when it comes to the indices ;)

Stack Trace's picture

My hair just grayed.

Golden Boy's picture

Sorry, not gonna happen. Those cock suckers are gonna print plastic coins if they have to.

pvzh's picture

Hopefully, not in trillion-dollar denominations.

bank guy in Brussels's picture

But Gideon Gono, head of the Zimbabwe Central Bank, printed up notes of 100 trillion Zimbabwe dollars ... they finally gave up and started using foreign currency ... and Gono still has his job. And I saw stories where you still get a trillion old Zim dollars as small change on the bus.

All other Central Bankers have taken note of Gono's career triumph. 'Print for Success'.

Or as Jim Sinclair keeps repeating, 'QE to infinity ... the one tool in the toolbox ..."

SheepDog-One's picture

You miss the point, this is NOT about keeping things going however they can, this banking system is over and theyre going to 1 world central bank next, will happen during 2012 first half. 

All this 'Wow no one ever saw this coming' is just cover for the planned collapse of the western world banking system, no question about it at all.

Golden Boy's picture

And leave the useless boys and girls at Goldman sucking wind? Not gonna happen. Power will remain shared. We will have ww3 before the nwo comes anyway.

Woodyg's picture

Goldman figures to be the last man standing as they say. And you have to admit that they have been quite successful lately placing 2 into positions of power in italy and greece.

So far the score this year seems to be:
Central Banksters 6
democracy 1

SheepDog-One's picture

LOL, who do you think is at the center of the world bank?

john39's picture

correct, and they will use the crisis to herd the masses into begging for the new planned system. 

MonsterBox's picture

SD1, i hope you're wrong. 

i only just reluctantly accepted the "print, print, print" abomination, with the hope they can kick the can for another 4-5 years....

eurusdog's picture

NWO won't happen until the whole shit pile is in flames. To many people with to much money will be fighting to get on top. NWO assumes dispirit parties can agree. AS an example, see the EZ. That seems to be working supremely in Europe right now.

Financial_Guardian_Angel's picture

I agree. No NWO yet. The two asshats in France and Germany can barely agree on what to serve for lunch at their meetings, let alone get all the power hungry dictators and world "leaders" to agree to share power.

NWO comes after this all blows up and there are only a few left standing. They will fight with every last loyal subject they can throw at each other before they share nicely with the other children.

TruthInSunshine's picture

The NWO is already actively planning things, in closed door meetings, which is why no journalists are allowed in.

It's a big, open secret, and it's called Bilderberg.

But that's just crazy, conspiracy-fueled conjecture....I know...(/sarc)

LawsofPhysics's picture

Have you been paying attention?  We have had a one world government since the creation of the Federal Reserve, when all the Americans becames tenants on the property they owned outright.  Debt-slaves to an international banking cartel that has put America's army and tax dollars to work for their own objectives around the world via the U.N., the I.M.F. and N.A.T.O.


Wake up!  The NWO and their offspring have been running things around the world for a solid 100 years. 

Woodyg's picture

It'll be a NWO with the appearance of a democracy led behind the scenes by an all-powerful central banking predator vampire.

Oh s*#t i guess we're already there.

SheepDog-One's picture

'Until the whole shit pile is in flames'....which just as likely as any other date may be tomorrow.

Freddie's picture

Hope & Change with the muslim and Nancy Pelosi.

Loose-Tools's picture

I heard on FOX News that Obama had Gay Sex with an Islamic Terrorist after speaking at a Convention for Unionized Abortionists.

Calmyourself's picture

An Islamic terrorist you say..  Huh, I heard it was a goat, also heard Bammy was mumbling betwwen grunt something resembling "Oh Reggie, I miss you so much" and "some animals are more equal than others", no?  Anyhow, nice avatar, pic of you in mom's basement I assume?

Loose-Tools's picture

No, that's me in the Dial-Up Internet Room at the Asylum. (har, har!) All I have to do is fart and I get the whole room to myself.

Iwanttoknow's picture

How many are posting from Mossad central?

Iwanttoknow's picture

No one is an Obama supporter.Obama is acontinuation of Bush.It is extremely unlikely that Obama is a musliam, not that it matters.He is a fascist and facilitator of the .01%.Where do you get your info,the local southern baptist priest?

Johnny Yuma's picture

Although your comment is hilarious, it won't hold true. Take a look at every country over time that attempted to print their way out of trouble. The best most recent example would be Zimbabwe. Their stock market was going straight up but eventually inflation choked them out. That too would and is happening with the U.S. A lower price target of the 800 area may be opptimistic and we could easily get into the 500's which would test the great bull trend line. 

Mercury's picture

Young Man Blues indeed.


But I have news for you Jeremy - every human society that has ever existed on has been a plutocracy, including this one.

And when you start bellyaching about our "mean-spirited" Supreme Court majority and global warming it makes me nervous.  Tell us you don't really believe that experts should rule the world and I'll feel better.

lolmao500's picture

Print print print!

wandstrasse's picture

nowadays any projection which looks further than 5 minutes in the future is ridiculous.

SheepDog-One's picture

Even this chart is ridiculous...its wavers around year after year to end back where we are now in 10 years? Ridiculous, it means nothing.

Sudden Debt's picture

I don't really expect rosy forecasts here, only logic once.

Carlyle Groupie's picture

When ZH comes out with stuff like this, it's a good time to buy the S&P big with both fists.


Everybodys All American's picture

Let me know when it's time to sell then.