Jeremy Grantham

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Stanley Druckenmiller: "This Is The Most Unsustainable Situation I Have Seen In My Career"





"when I look at the current picture of expected tax revenues combined with benefits promised to future generations, this is the most unsustainable situation I have seen ever in my career." The disaster that Druckenmiller sees coming for the United States is all about changing demographics and entitlement spending. They don’t add up to a sustainable situation. Fixing this is going to require some real sacrifice by the American people and that doesn’t sound like a very appealing platform upon which to get re-elected.

 
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A "Generational" Peak In Corporate Profit Margins





Falling profit margins and rising valuations (as earnings fall) make for a pretty bearish one-two punch for the stock market. Investors will surely become less eager to pay higher valuations for companies growing more slowly. That equation usually works in reverse. And there’s no reason we can see to expect these challenges to corporate profit margins to let up any time soon. The S&P 500 now trades at its highest price-to-earnings ratio since the bull market began even as the index remains well off its recent price highs. And profit margins still could have a long way to fall before even reaching their average level since 1950.

 
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The Stock Market Is A Monetary Policy Junkie - Quantifying The Fed's Unprecedented Impact On The S&P





The bulls will presumably argue that this Fed impact is now part of the accepted wisdom, and that P/Es should remain higher than history in order to reflect the Greenspan/Bernanke/Yellen Put. The bears will suggest that if ever there were a time for the scales to fall from investors’ eyes over the Wizard-of-Oz-like nature of the Fed, then this is it. We are inclined to the latter view. Betting on the Fed’s ability to generate continued market levitation seems like a dangerous game to us, but as Newton long ago opined, “I can calculate the motion of heavenly bodies, but not the madness of people.”

 
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The Fed Has Created A "Monster" And Just Made A "Dangerous Mistake," Stephen Roach Warns





"By now, it’s an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization. A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake."

 
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2015 Year In Review - Scenic Vistas From Mount Stupid





“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey

 
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Stephen Roach: "The Fed Has Set The Market Up For A Crisis"





“While Fed did a great job in reacting to global financial crisis, it played an equal role in setting markets up for the crisis by running uber-accommodative monetary policy.”

 
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Weekend Reading: Risk - That Is All





While the world patiently waits for Janet Yellen to raise interest rates this month, the markets have been unable to decide as of yet whether such an event is good or bad thing.

 
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Jeremy Grantham Urges "Easily Manipulated" Americans To "Become More Realistic" About World's Demise





Americans have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff "that just ain’t so." We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.

 
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3 Things: Earnings, Profits, Rates





"If you just exclude all the bad stuff, earnings look quite good."

 
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4 Warnings And Why You Should Pay Attention





No professional or successful investor every bought and held for the long-term without regard, or respect, for the risks that are undertaken. If the professionals are looking at "risk" and planning on how to protect their capital from losses when things go wrong - then why aren't you?  Exactly how many warnings do you need?

 
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5 Things To Ponder: Mentally Conflicted





The disconnect between economic underpinnings, market internals and "bullish" investor optimism leaves many investors/advisors "mentally conflicted." If they "sell" too soon, they might miss a further advance in the market. But if they wait too long, well, they have lived through that scenario previously. This week's reading list is a smattering of conflicting views about the markets and the economy.

 
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