Quote of the Day

“Be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle less black than the day before.”

Jeremy Grantham Co-Founder of money management firm GMO

Grantham’s had some other interesting thoughts on the current state of the markets and the economy in general. The complete May 21st interview published in SmartMoney Magazine can be found here.

The fair price of the S&P 500 is around 900 but due to the rapidity of which it rebounded from the March 6th low of 666 it is “likely” that we make a new low. He puts the odds at 50-50 that we re-test this low.

He really likes alternative energy investments.

Alternative energies and combating climate change are the single most important economic initiatives over the next 10 years—really over the next 50 years. It will be a very exciting next 50 years.”

Mr. Grantham is not optimistic about the long-term benefits of the current stimulus package and other measures taken by our government to assist in spurring economic recovery.

“The stimulus is so great in the United States, China and the United Kingdom, it will kick the economy up. GDP will go back positive for two to three quarters. They’ll assume everything is settled, that throwing money at it has worked. But the long-term imbalance between over-producers [like China] and over-spenders [like the U.S.] will continue. It’ll be a multi-year drag on growth.”

“If the problem is that we consume too much and borrow too much, does it make sense to borrow more and spend more? It doesn’t make sense to solve alcoholism by giving an alcoholic a quart of whiskey, but everyone believes that we must stimulate. So that’s why we feel this is a temporary cure.”

“We’re not rich, and we’re undersaved and underpensioned. Those will be a real brake on economic growth. This will be a pretty long recovery period, longer than we’re used to, but hopefully not as long as Japan took. It will not be as long as the Depression, but it will be several years, and not just two. Lord knows we have had several fat years.”

I believe Grantham would suggest and I would agree that actions to make a positive and permanent change in our economy require a long-term focus and courage to move against the crowd in the short-term. This reminds me of one of my favorite quotes from Albert Einstein, “Problems cannot be solved by the same level of thinking that created them.”


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