GMO Quarterly Letter: The First Truly Global Bubble
Jeremy Grantham’s missive in the latest quarterly letter put out by Grantham, Mayo, Van Otterloo (GMO) is doing the rounds in the finance blogosphere - It’s Everywhere, In Everything: The First Truly Global Bubble (free registration required).
Excerpts:
Not a single country anywhere – emerging or developed – out of 42 listed by The Economist grew its GDP by less than Switzerland’s 2.2%!
. . . if we are correct, the process of moving all asset prices smoothly to fair value over 7 years which is how we do our 7-year forecasts) will have resulted in a world where investors are paying for the privilege of taking risk!
Most bubbles go hrough an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right. (A surge in money fl owing into private equity might cause just such a hyperbolic phase.)
The second half of the essay goes on to talk about commodities, venture capital, hedge funds & such. Must read!
Also check GMO’s Quarterly Update; note the substantial weight of the Indian rupee in GMO’s Emerging Currency Index:
Given that Indian interest rates aren’t likely to drop anytime soon, the rupee will continue to be a “high yielding” currency. Moreover, with its recent appreciation & visibility, and the introduction of rupee-based financial instruments, we might see other FIs follow GMO.
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April 28th, 2007 at 4:48 pm
Recent Q1-GDP figures of US and leading indicators suggest Q2-GDP may also be worse, indicating hard landing. All asset classes (except for Cash/PPF/NSC/G-secs) may be in for a deep correction not seen in our history.
As Grantham says just “get out of all asset classes now”.
If any investor has invested beyond his true risk tolerance levels, he/she will be in for a big trouble. Better lighten up now.
May 3rd, 2007 at 7:47 am
Yes we all anticipate a global investment bubble particularly in the U.S>, which is spilling over into other parts of the World and yes, China is also creating another investment bubble particularly in the stock market as well as in the housing market.Correction is imminent but if we are in and out at the correct timing, it would be a hell of a bonanza for speculators…..