Sunday, April 29, 2007

Grantham's 'All asset classes everywhere bubble'. It's Ridiculous!

What's ridiculous about it? Well. let's start with a rather bizarre quote from TSC writer Brett Arends: "As Grantham points out, a bubble needs two things: excellent fundamentals and easy money." I am sorry, but bubbles involve extremes of valuation, not excellent fundamentals.

Arends again, describing Grantham's thinking: "Grantham concludes that every asset class is expensive today compared with historic averages...." US large-cap growth-oriented stocks are not so expensive.

There is a bit of discussion of whether high current earnings are good support for high stock prices, and Grantham just is not impressed. But those earnings are what they are. They are reflective of the current economy.

"The bursting of [this] bubble will be across all countries and all assets, with the probable exception of high-grade bonds," Grantham warned. "Since no similar global event has occurred before, the stresses to the system are likely to be unexpected." Surely it is a risky world. And there is a part of all of us which strives to be prudent. But prudence is only truly so if it based upon reality. Grantham just has not made his case.

Jeremy Grantham: All the World's a Bubble

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