Jeremy Grantham Recommends Cash, Large-Cap U.S. Stocks To Weather Storm
On Tuesday, Reuters interviewed Jeremy Grantham, chairman of GMO LLC, about his latest economic and investment outlook. Reuters’ Jennifer Ablan and Herbert Lash wrote:
The credit crisis that has ravaged world markets since last summer will fester for years and result in anemic economic growth in Japan, the United States and most of Europe through 2009, according to an influential Wall Street investor.
Grantham said:
We are in a recessionary phase that will last perhaps two and two and a half years. It will be, interestingly, unlike anything else we’ve seen.
Alban and Lash added:
His outlook for the environment now is grim, if not dire… a more prolonged and painful recession than anyone has imagined will occur, an economic downturn that will come closer in global reach to anything the world has seen since the Great Depression, Grantham said.
As for where to invest, Grantham, whose clients have included U.S. Vice President Dick Cheney and former U.S. presidential candidate John Kerry, suggested cash is king. From the Reuters piece:
He recommends investors hold cash, and if they must be invested, he favors large-cap U.S. equities…
Where should investors hide? Grantham said large-cap U.S. stocks provide “an absolute guaranteed no-brainer.”
“Their profit margins are the only profit margins in any group we look at anywhere that aren’t measurably above average at all,” he explained. “Everything else, the profit margins are way over average globally, including emerging markets — very vulnerable, hugely mean-reverting,” he warned.
Grantham said they have lagged other asset classes over the past six years:
“They’ve been left behind, exactly the time you would need them.”
Source:
“GMO’s Grantham sees prolonged credit crisis”
Jennifer Ablan, Herbert Lash
Reuters, August 6, 2008
