Jeremy Grantham, chief investment strategist of GMO, called the financial sector “a blood sucker,” with the economy not getting any economic value from the sector's growth.
Speaking at the Council of Institutional Investors conference in Boston on Monday, Mr. Grantham said the economy's growth rate has steadily slowed as the financial sector's share of the economy has grown. He accused bankers of “obfuscating and bamboozling” clients.
Mr. Grantham gave a gloomy outlook for U.S. stocks in general. He is upbeat about emerging markets, although he has concern about China in part because of its huge debt. China “looks like it may stumble,” he said.
“I believe we are entering a classic bear market,” Mr. Grantham said.
He forecast an annualized 2.8% real return for U.S. stocks, adjusted for inflation, for the next seven years while emerging markets equities will see 9.4% real return.
He said recovery from a debt crash takes longer than recovery from a cyclical downturn in the market.
In an electronic poll taken before Mr. Grantham's speech, most of the 455 attendees of the conference gave a dim assessment for U.S. stocks for the rest of the year.
In the polling, 44% believe the Dow Jones industrial average will finish the year between 10,000 and 11,000, while 22% believe it will finish between 11,000 and 12,000. Another 21% believe it will finish under 10,000 and 10% believe it will finish over 12,000.
Speaking at the conference, Steven Grossman, Massachusetts state treasurer and trustee of the $50.3 billion Massachusetts Pension Reserves Investment Management Board, Boston, mentioned a philosophy to “make optimism a way of life."
“So I voted for 11,000 to 12,000 Dow” in the electronic poll, he said.
“Although our No. 1 mandate (at PRIM), our only mandate, is to maximize pension assets, we still have a role to play” to represent the values of the people of Massachusetts “by a more activist role in pension fund involvement,” Mr. Grossman said.
“We are an army of activists … collectively public pension funds (and) endowment funds own corporate America, not the other way around,” Mr. Grossman said. “The sooner corporate America understands we own them and they don't own us, the sooner they take that activist role, that responsibility, even more (seriously) to work together.”
In another electronic poll, attendees were asked if regulators should concentrate on facilitating capital formation, even if it means sacrificing some investor protections. Only 4% of attendees voted very strongly in favor of doing so, 6%, strongly in favor, 8% indifferent, 39% strongly against and 44% very strongly against.