Grantham: US will return 2% real next 2 decades

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AlphaLess
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Re: Grantham: US will return 2% real next 2 decades

Post by AlphaLess » Thu Mar 14, 2019 11:25 pm

nisiprius wrote:
Tue Mar 12, 2019 5:08 pm
how much travel we wanted to do, etc. etc.
Did you tell him that you want to go on vacation 731 days a year, and anything less than that is unacceptable?
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Re: Grantham: US will return 2% real next 2 decades

Post by AlphaLess » Thu Mar 14, 2019 11:26 pm

nisiprius wrote:
Thu Mar 07, 2019 8:38 pm
GMO (Grantham's) "forecasts" are noise. Ignore them.
You gotta admit: the blind squirrel is doing pretty good on bonds!

I guess he knows how to read the yield thing from the info page.
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Re: Grantham: US will return 2% real next 2 decades

Post by AlphaLess » Thu Mar 14, 2019 11:27 pm

H-Town wrote:
Thu Mar 07, 2019 8:40 pm
nisiprius wrote:
Thu Mar 07, 2019 8:38 pm
Notice that he didn't even get the relative returns right. Among six asset classes of stocks:

--he forecasted that emerging markets would have the highest return. It had the lowest.
--he forecasted that US small-caps would have the lowest return. It had the highest.

Why do people pay any attention to GMO's forecasts?
Maybe try to do the opposite of his forecast?
LOL.

Like that is going to be helpful.
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Re: Grantham: US will return 2% real next 2 decades

Post by AlphaLess » Thu Mar 14, 2019 11:29 pm

yogesh wrote:
Thu Mar 07, 2019 10:18 pm
Wow; that's quite intense data mining - Correlation coefficient between the forecasts and the observations 0.05
Actually, and I say this with all seriousness, that conclusion is FLAT OUT WRONG.

If you split those by bond and stock, the sub-sample correlations are quite significant.
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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Thu Mar 14, 2019 11:32 pm

drk wrote:
Thu Mar 14, 2019 11:22 pm
gmaynardkrebs wrote:
Thu Mar 14, 2019 11:12 pm
Grantham is not so easily dismissed. I just don't see the path for getting to 2% real over 20Y if the next 7Y are negative.
Are we done waiting for the melt-up he predicted last year, or has that been dismissed?
IIRC, Grantham said it was a possibility. You said "prediction." Personally, I think we've already had our melt-up.

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Re: Grantham: US will return 2% real next 2 decades

Post by drk » Thu Mar 14, 2019 11:52 pm

gmaynardkrebs wrote:
Thu Mar 14, 2019 11:32 pm
He said it was a possibility. You said "prediction." Personally, I think we've already had our melt-up.
He published a note that opened with this:
I find myself in an interesting position for an investor from the value school. I recognize on one hand that this is one of the highest-priced markets in US history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market. The data on the high price of the market is clean and factual.
And closed with this:
Summary of my guesses (absolutely my personal views)
  • A melt-up or end-phase of a bubble within the next 6 months to 2 years is likely, i.e., over 50%.
  • If there is a melt-up, then the odds of a subsequent bubble break or melt-down are very, very high, i.e., over 90%.
  • If there is a market decline following a melt-up, it is quite likely to be a decline of some 50% (see Appendix).
  • If such a decline takes place, I believe the market is very likely (over 2:1) to bounce back up way over the pre 1998 level of 15x, but likely a bit below the average trend of the last 20 years, as the trend slowly works its way back toward the old normal on my “Not with a Bang but a Whimper” flight path.
So, I grant that he called the predicted melt-up a "possible/probable bubble" and these predictions "guesses." But we can dispatch with the idea that he wouldn't have taken credit for them as predictions if they had turned out correct.

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Re: Grantham: US will return 2% real next 2 decades

Post by DonIce » Fri Mar 15, 2019 12:01 am

I'd love another 50% drop in the markets in my lifetime (I didn't have any capital in 2009, was still in university). Don't get such a buying opportunity often.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Fri Mar 15, 2019 12:24 am

DonIce wrote:
Fri Mar 15, 2019 12:01 am
I'd love another 50% drop in the markets in my lifetime (I didn't have any capital in 2009, was still in university). Don't get such a buying opportunity often.
Too many other investors have the same idea, which is a major reason it won't happen that way. Grantham says the more likely scenario is a a one step up, two step down decline lasting a long time. The buy on the dips mentality is by now so ingrained (and possibly programmed into bots) that a sudden decline of 50% or more seems highly unlikely. The same cannot be said for a decline of similar magnitude occurring over a decade or two.

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Re: Grantham: US will return 2% real next 2 decades

Post by DonIce » Fri Mar 15, 2019 12:55 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 12:24 am
Too many other investors have the same idea, which is a major reason it won't happen that way. Grantham says the more likely scenario is a a one step up, two step down decline lasting a long time. The buy on the dips mentality is by now so ingrained (and possibly programmed into bots) that a sudden decline of 50% or more seems highly unlikely. The same cannot be said for a decline of similar magnitude occurring over a decade or two.
Don't see how it's any more ingrained now than in 2008. Markets dropped 20% in just 80 days only 3 months ago, and that was without any real cause other than a 0.25% interest rate hike. Stock markets can definitely still drop significantly in a single year, they just need a real reason to do so.

Many millennials are only right now for the first time starting to invest appreciable sums in the stock markets. They'll be spooked out at the first sign of serious economic trouble in droves, meanwhile boomers are mostly retired/retiring and will be forced to continue to withdraw from their portfolios regardless of market prices. More people than ever have direct easy access to their investment portfolios and people are no more rational than they've ever been.

I'm not saying I predict or expect a 50% decline any time soon specifically, they are of course historically rare, but I'm just saying there's no reason to believe stock markets are any less likely to drop precipitously now than they have been at any time in the past.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Fri Mar 15, 2019 7:46 am

DonIce wrote:
Fri Mar 15, 2019 12:55 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 12:24 am
Too many other investors have the same idea, which is a major reason it won't happen that way. Grantham says the more likely scenario is a a one step up, two step down decline lasting a long time. The buy on the dips mentality is by now so ingrained (and possibly programmed into bots) that a sudden decline of 50% or more seems highly unlikely. The same cannot be said for a decline of similar magnitude occurring over a decade or two.
Don't see how it's any more ingrained now than in 2008. Markets dropped 20% in just 80 days only 3 months ago, and that was without any real cause other than a 0.25% interest rate hike. Stock markets can definitely still drop significantly in a single year, they just need a real reason to do so.

Many millennials are only right now for the first time starting to invest appreciable sums in the stock markets. They'll be spooked out at the first sign of serious economic trouble in droves, meanwhile boomers are mostly retired/retiring and will be forced to continue to withdraw from their portfolios regardless of market prices. More people than ever have direct easy access to their investment portfolios and people are no more rational than they've ever been.

I'm not saying I predict or expect a 50% decline any time soon specifically, they are of course historically rare, but I'm just saying there's no reason to believe stock markets are any less likely to drop precipitously now than they have been at any time in the past.
What's changed since 2008 is that today there are millions and millions of investors kicking themselves either for selling out in a panic or for not buying more during the crash, plus millions more, all of whom seem to post here, congratulating themselves for having stayed in. To me, the 20% decline followed by a sharp rebound this year is simply further evidence of how deeply entrenched the BOTDs mentality has become. I just don't see a crash as possible under such circumstances.

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Re: Grantham: US will return 2% real next 2 decades

Post by TheTimeLord » Fri Mar 15, 2019 7:57 am

DonIce wrote:
Fri Mar 15, 2019 12:55 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 12:24 am
Too many other investors have the same idea, which is a major reason it won't happen that way. Grantham says the more likely scenario is a a one step up, two step down decline lasting a long time. The buy on the dips mentality is by now so ingrained (and possibly programmed into bots) that a sudden decline of 50% or more seems highly unlikely. The same cannot be said for a decline of similar magnitude occurring over a decade or two.
Don't see how it's any more ingrained now than in 2008. Markets dropped 20% in just 80 days only 3 months ago, and that was without any real cause other than a 0.25% interest rate hike. Stock markets can definitely still drop significantly in a single year, they just need a real reason to do so.

Many millennials are only right now for the first time starting to invest appreciable sums in the stock markets. They'll be spooked out at the first sign of serious economic trouble in droves, meanwhile boomers are mostly retired/retiring and will be forced to continue to withdraw from their portfolios regardless of market prices. More people than ever have direct easy access to their investment portfolios and people are no more rational than they've ever been.

I'm not saying I predict or expect a 50% decline any time soon specifically, they are of course historically rare, but I'm just saying there's no reason to believe stock markets are any less likely to drop precipitously now than they have been at any time in the past.
Combination of data mining and the Observer Effect. We seem to have a lot more "V" bottoms than we did in the past.
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Re: Grantham: US will return 2% real next 2 decades

Post by TN_Boy » Fri Mar 15, 2019 8:44 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 7:46 am
DonIce wrote:
Fri Mar 15, 2019 12:55 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 12:24 am
Too many other investors have the same idea, which is a major reason it won't happen that way. Grantham says the more likely scenario is a a one step up, two step down decline lasting a long time. The buy on the dips mentality is by now so ingrained (and possibly programmed into bots) that a sudden decline of 50% or more seems highly unlikely. The same cannot be said for a decline of similar magnitude occurring over a decade or two.
Don't see how it's any more ingrained now than in 2008. Markets dropped 20% in just 80 days only 3 months ago, and that was without any real cause other than a 0.25% interest rate hike. Stock markets can definitely still drop significantly in a single year, they just need a real reason to do so.

Many millennials are only right now for the first time starting to invest appreciable sums in the stock markets. They'll be spooked out at the first sign of serious economic trouble in droves, meanwhile boomers are mostly retired/retiring and will be forced to continue to withdraw from their portfolios regardless of market prices. More people than ever have direct easy access to their investment portfolios and people are no more rational than they've ever been.

I'm not saying I predict or expect a 50% decline any time soon specifically, they are of course historically rare, but I'm just saying there's no reason to believe stock markets are any less likely to drop precipitously now than they have been at any time in the past.
What's changed since 2008 is that today there are millions and millions of investors kicking themselves either for selling out in a panic or for not buying more during the crash, plus millions more, all of whom seem to post here, congratulating themselves for having stayed in. To me, the 20% decline followed by a sharp rebound this year is simply further evidence of how deeply entrenched the BOTDs mentality has become. I just don't see a crash as possible under such circumstances.
The "crashes don't happen" mentality was pretty common back in the late 90s. We'd had almost 20 years of a very fine stock market (the 87 crash being your basic v-shaped blip). My recollection is that some people thought that hey, the Fed has pretty much gotten control of the business cycle -- no more big ups and downs!

This turned out not to be the case.

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Re: Grantham: US will return 2% real next 2 decades

Post by jayk238 » Fri Mar 15, 2019 8:50 am

stlutz wrote:
Thu Mar 07, 2019 9:15 pm
Grantham's writings are always interesting. He's a smart guy.

His forecasts aren't just "going where the numbers take him." In a very qualitative sense, he's a long-term pessimist because he believes we're running out of natural resources on one hand, but on the other hand we aren't running out them them fast enough (climate change). In short, all outcomes lead to ruin.

Perhaps he's right, but he's never going to arrive at an optimistic projection. His dour forecasts back in 2009, 10, 11 etc. (when valuations were rather cheap) are evidence of that.
Its funny because i use the same logic to arrive to the opposite conclusion and its my driving theory.

We are facing a precipitous and alarming population crunch that will result in substantial declines in people. I think resource scarcity will not be the problem.

People scarcity will. It may also justify higher p/e initially.

As mor and more people get old and depend on the govt these things may get worse. But thats another 10 years away.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Fri Mar 15, 2019 9:13 am

TN_Boy wrote:
Fri Mar 15, 2019 8:44 am
The "crashes don't happen" mentality was pretty common back in the late 90s. We'd had almost 20 years of a very fine stock market (the 87 crash being your basic v-shaped blip). My recollection is that some people thought that hey, the Fed has pretty much gotten control of the business cycle -- no more big ups and downs! This turned out not to be the case.
I guess that's true -- part of what prompted Greenspan's irrational exuberance remarks. As Shiller points out, the narratives used to explain the crash make a big difference. 87 was quickly blamed, rightly or wrongly, on program trading. 2008 was clearly more than that, and seemed to be about something quite fundamental. In fact it was, but the stock market seems to have recovered regardless.

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Re: Grantham: US will return 2% real next 2 decades

Post by Eno Deb » Fri Mar 15, 2019 9:28 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 7:46 am
What's changed since 2008 is that today there are millions and millions of investors kicking themselves either for selling out in a panic or for not buying more during the crash
In 2007 there were millions of investors kicking themselves for selling out or not buying more during the dotcom bear market (where the S&P dropped from something like 1500 to 800 or so). There is a big difference between talking about buying in a crash and actually doing it, and every generation seems to think they're smarter than the previous ones. :wink:

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Re: Grantham: US will return 2% real next 2 decades

Post by DanMahowny » Fri Mar 15, 2019 9:43 am

AlphaLess wrote:
Thu Mar 14, 2019 11:23 pm
There was a homeless guy on my way home from work that said if I help him with a couple of dollars, god will make me a millionaire.

So who do you believe: Grantham (WHO?) or the homeless nobody?

P.S. I told the homeless person that being a millionaire is so overrated. I want to be a BILLIONAIRE.
I don't believe Grantham, or the homeless dude. I believe you.

Also, if I woke up a millionaire, I'd spend the remainder of the day trying to figure out where the rest of my money went.
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Re: Grantham: US will return 2% real next 2 decades

Post by TN_Boy » Fri Mar 15, 2019 1:06 pm

gmaynardkrebs wrote:
Fri Mar 15, 2019 9:13 am
TN_Boy wrote:
Fri Mar 15, 2019 8:44 am
The "crashes don't happen" mentality was pretty common back in the late 90s. We'd had almost 20 years of a very fine stock market (the 87 crash being your basic v-shaped blip). My recollection is that some people thought that hey, the Fed has pretty much gotten control of the business cycle -- no more big ups and downs! This turned out not to be the case.
I guess that's true -- part of what prompted Greenspan's irrational exuberance remarks. As Shiller points out, the narratives used to explain the crash make a big difference. 87 was quickly blamed, rightly or wrongly, on program trading. 2008 was clearly more than that, and seemed to be about something quite fundamental. In fact it was, but the stock market seems to have recovered regardless.
Well, of course my main point is that I do not believe we have entered an era where we do not have crashes, or crashes all look like 2008; sharply down, then quickly recovering. I believe more painful crashes can and will occur. "This time is different" is always a perilous way to think.

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Re: Grantham: US will return 2% real next 2 decades

Post by frugalecon » Fri Mar 15, 2019 1:18 pm

DanMahowny wrote:
Fri Mar 15, 2019 9:43 am
AlphaLess wrote:
Thu Mar 14, 2019 11:23 pm
There was a homeless guy on my way home from work that said if I help him with a couple of dollars, god will make me a millionaire.

So who do you believe: Grantham (WHO?) or the homeless nobody?

P.S. I told the homeless person that being a millionaire is so overrated. I want to be a BILLIONAIRE.
I don't believe Grantham, or the homeless dude. I believe you.

Also, if I woke up a millionaire, I'd spend the remainder of the day trying to figure out where the rest of my money went.
Chris Rock said something to the effect that, if Bill Gates woke up tomorrow with Oprah's money, he'd jump out of a window and slit his throat on the way down saying, I can't even put gas in my plane!

It's all a matter of perspective, I guess.

ETA: I realize that this is off topic, but not sure there is much more to say about Jeremy Grantham. What I don't get about him, and his firm belief in reversion to the mean, is that he seems certain about what the mean is that we are reverting towards. It isn't clear to me that the mean valuation is a universal constant.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Fri Mar 15, 2019 3:42 pm

frugalecon wrote:
Fri Mar 15, 2019 1:18 pm
... not sure there is much more to say about Jeremy Grantham. What I don't get about him, and his firm belief in reversion to the mean, is that he seems certain about what the mean is that we are reverting towards. It isn't clear to me that the mean valuation is a universal constant.
It is not a universal constant. He offers two projections, one for partial mean reversion and second for full mean reversion. The CAPE mean is a purely observed phenomena from the historical data. IIf the past had been different, the mean would be different.

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Re: Grantham: US will return 2% real next 2 decades

Post by AlphaLess » Fri Mar 15, 2019 7:23 pm

DanMahowny wrote:
Fri Mar 15, 2019 9:43 am
AlphaLess wrote:
Thu Mar 14, 2019 11:23 pm
There was a homeless guy on my way home from work that said if I help him with a couple of dollars, god will make me a millionaire.

So who do you believe: Grantham (WHO?) or the homeless nobody?

P.S. I told the homeless person that being a millionaire is so overrated. I want to be a BILLIONAIRE.
I don't believe Grantham, or the homeless dude. I believe you.

Also, if I woke up a millionaire, I'd spend the remainder of the day trying to figure out where the rest of my money went.
Solid response.

I had to triple-check that I was not the one writing it.
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Re: Grantham: US will return 2% real next 2 decades

Post by Thesaints » Fri Mar 15, 2019 7:43 pm

TN_Boy wrote:
Fri Mar 15, 2019 1:06 pm
Well, of course my main point is that I do not believe we have entered an era where we do not have crashes, or crashes all look like 2008; sharply down, then quickly recovering. I believe more painful crashes can and will occur. "This time is different" is always a perilous way to think.
Yep. Nobody expects the Spanish Inquisition...

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Re: Grantham: US will return 2% real next 2 decades

Post by LadyGeek » Fri Mar 15, 2019 8:08 pm

^^^ :) In case anyone doesn't get the above reference, google "Nobody expects the Spanish Inquisition."
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Re: Grantham: US will return 2% real next 2 decades

Post by HomerJ » Fri Mar 15, 2019 8:30 pm

LadyGeek wrote:
Fri Mar 15, 2019 8:08 pm
^^^ :) In case anyone doesn't get the above reference, google "Nobody expects the Spanish Inquisition."
You're such a geek, lady... :)
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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Fri Mar 15, 2019 9:49 pm

Thesaints wrote:
Fri Mar 15, 2019 7:43 pm
TN_Boy wrote:
Fri Mar 15, 2019 1:06 pm
Well, of course my main point is that I do not believe we have entered an era where we do not have crashes, or crashes all look like 2008; sharply down, then quickly recovering. I believe more painful crashes can and will occur. "This time is different" is always a perilous way to think.
Yep. Nobody expects the Spanish Inquisition...
This is the only place it's called a buying opportunity.

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