Tags: Grantham Better to Sell Early in This Market

Grantham: Better to Sell Early in This Market

Monday, 16 May 2011 08:12 AM

Jeremy Grantham, chief investment strategist for Boston money manager GMO, is advising institutional investors to take money off the table early — even if it feels too early to do so now.

He made the case in a quarterly note to investors crammed with caveats about his own penchant for moving early on trends, sometimes years too early. Nevertheless, the end of the Federal Reserve’s massing quantitative easing program, known in the press as QE2, means it’s time to get out of riskier assets, Grantham argues.

A third round of easing “would very probably keep the speculative game going,” he writes. But too many external shocks are building up — multiple military conflicts and natural disasters, rising interest rates in emerging markets, among other exogenous events — to insulate equity investors should the Fed suddenly close the easy-money tap.

“The market may still get to, say, 1,500 (on the S&P) before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even,” Grantham writes.

“And whether it will reach 1,500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it.”

The strategy now is a “hard-nosed value approach,” which Grantham defines as building cash around a “base of high-quality blue chips and emerging-market equities.”

Inflation has hit a two-and-a-half year high on rising food and energy costs, to 3.2 percent on an annualized basis. Core inflation, which removes food and energy, rose much less, to a 1.2 percent 12-month basis.

bernanke200.jpg
Fed Chair Ben Bernanke
(Getty Images photo)
The Fed has maintained that core inflation would need to rise to 2 percent to warrant a policy response, such as tightening money supply.

“Increases in commodity prices are in turn boosting overall consumer inflation,” Fed Chair Ben Bernanke told reporters at a recent press conference.

“However, measures of underlying inflation, though having increased modestly in recent months, remain subdued, and longer-term inflation expectations have remained stable.”

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Jeremy Grantham, chief investment strategist for Boston money manager GMO, is advising institutional investors to take money off the table early even if it feels too early to do so now. He made the case in a quarterly note to investors crammed with caveats about his own...
Grantham Better to Sell Early in This Market
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2011-12-16
Monday, 16 May 2011 08:12 AM
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