BOSTON Jeremy Grantham, chairman of Boston-based GMO LLC and a renowned wet blanket in the face of irrational exuberance, is sounding uncharacteristically giddy these days.
Asked what advice hed give to chief financial officers overseeing corporate retirement plans, Mr. Grantham said they should recognize that there are bargains to be had now in almost every corner of global equity markets even mouthwatering bargains.
While that might seem like a schizophrenic shift for a man who for years has dismissed most mainstream investment opportunities as wildly overpriced, its the capital markets that have been manic and now depressive. In the space of just over a year, the Dow Jones industrial average has fallen 41% from its record close of 14,164.53 on Oct. 9, 2007. That plunge simultaneously revived Mr. Granthams reputation as a seer, while turning him into a bull albeit, a cautious one.
On the seer side, the markets plunge in the past month left annualized returns for the Standard & Poors 500 benchmark index over the past decade below the -1.1% forecast GMO made on Sept. 30, 1998, at a time when competitors were largely predicting healthy returns for U.S. stocks.
In an interview, Mr. Grantham said until the more than 20% plunge of U.S. equity markets in the past month, the surge in equity valuations that began from the mid-1990s had been the only market bubble of 28 tracked by GMO that had not broken all the way back to pre-existing trend lines. The idea that volatile market valuations inevitably revert to historic means has been a mantra of Mr. Granthams over the decades.
Previous bubbles had always overcorrected, but the retreat from the technology bubble between 2000 and 2002 fell well short of the average retrenchment, said Mr. Grantham, calling the markets upturn between 2003 and 2007 the greatest sucker rally in history.