Tags: Grantham | US | Lean | Years

Jeremy Grantham: US Must Brace for 5 More Lean Years

Wednesday, 07 Dec 2011 08:11 AM

GMO Chairman Jeremy Grantham says we'll have at least five more lean years.

"Sadly, I feel increasingly vindicated by my “seven lean years” forecast of 2½ years ago," Grantham writes in a note to investors.

"The U.S., and to some extent the world, will not easily recover from the current level of debt overhang, the loss of perceived asset values, and the gross financial incompetence on a scale hitherto undreamed of."
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Grantham advises investors to avoid lower-quality U.S. stocks but otherwise have a near normal weight in global equities, tilt to safety wherever possible, avoid duration risk in bonds and have substantial cash reserves.

"I fear a major short-term decline in commodities based on a combination of less bad weather – which has been bad, but indeed less bad – and economic weakness, especially in China," Grantham says.

"However, I believe chances for further price declines in resources are still better than 50-50 as China and the world slow down for a while, and the weather becomes a bit more stable.”

The United States in particular, says Grantham, has rapidly acquired relative deficiencies over the last 20 years such as notable depleted infrastructure and marked falloff in effective education and training that will hamper the effective functioning and growth of its economy.

Moreover, drastic declines in both U.S. income equality – the United States has become quite quickly one of the least equal societies – and in the stickiness of economic position from one generation to another.

"We have gone from having been notably upwardly mobile during the Eisenhower era to having fallen behind other developed countries today, even the U.K.!," Grantham says.

The Economic Times reports that China is willing to turn some of its holdings of U.S. debt into investment in America to improve U.S. infrastructure.

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GMO Chairman Jeremy Grantham says we'll have at least five more lean years. Sadly, I feel increasingly vindicated by my seven lean years forecast of 2½ years ago, Grantham writes in a note to investors. The U.S., and to some extent the world, will not easily...
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2011-11-07
Wednesday, 07 Dec 2011 08:11 AM
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