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Jeremy Grantham On Investing In A Low-Growth World
I think the Economy might grow slower going forward from 3% (real, i.e. after inflation) long term to 2% (real) and that might be higher than average for the developed world. Even China and other EM has cut their long term projections down.
I would also like to challenge the premise that Boomer generation is in asset liquidation mode and equity markets is likely to go down from here. However, while the Boomer generation was bigger than GenX (mine), the size of GenY is much bigger. GenY is at the beginning of asset gathering (home, cars in addition to Financial assets) while Boomers are not liquidating all assets at once. So, my expectation is that it will balance out. Besides, GenY is likely to consume more and Boomers is still be consuming, in particular health related consumption is likely to go up. People that are working in health care (typically younger people) will in turn spend their income on other sectors. So, the withdrawal effect of Boomer generation is going to be much less than claimed to be.
However, I agree with Grantham that stock market returns are not necessarily going to reflect the Economic growth. Grantham has given a number of reasons why fast growth did not always translate to high returns. One reason that was not managed is the stock dilution in those fast growing countries that companies in order to raise money to expand they offer more shares and even if the earnings are growing, on the EPS measure the earning growth is slow or declining. We have seen this in the last 4-5 years as EM has maintained much higher growth than developed world but stock returns were worse in many EM countries. The biggest is China.
To close up, just like many others Grantham reports are interesting intellectual exercise but their research is not particularly helpful for their own funds.
Comments
Here are some more details of the latest CBO projections.
http://blogs.wsj.com/economics/2013/02/05/charts-10-years-in-the-u-s-economy-according-to-cbo/
I think the Economy might grow slower going forward from 3% (real, i.e. after inflation) long term to 2% (real) and that might be higher than average for the developed world. Even China and other EM has cut their long term projections down.
I would also like to challenge the premise that Boomer generation is in asset liquidation mode and equity markets is likely to go down from here. However, while the Boomer generation was bigger than GenX (mine), the size of GenY is much bigger. GenY is at the beginning of asset gathering (home, cars in addition to Financial assets) while Boomers are not liquidating all assets at once. So, my expectation is that it will balance out. Besides, GenY is likely to consume more and Boomers is still be consuming, in particular health related consumption is likely to go up. People that are working in health care (typically younger people) will in turn spend their income on other sectors. So, the withdrawal effect of Boomer generation is going to be much less than claimed to be.
However, I agree with Grantham that stock market returns are not necessarily going to reflect the Economic growth. Grantham has given a number of reasons why fast growth did not always translate to high returns. One reason that was not managed is the stock dilution in those fast growing countries that companies in order to raise money to expand they offer more shares and even if the earnings are growing, on the EPS measure the earning growth is slow or declining. We have seen this in the last 4-5 years as EM has maintained much higher growth than developed world but stock returns were worse in many EM countries. The biggest is China.
To close up, just like many others Grantham reports are interesting intellectual exercise but their research is not particularly helpful for their own funds.