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TheStreet Open House

Jeremy Grantham Wants to Save You

BOSTON ( TheStreet) -- A day before U.S. stocks posted their second-worst decline in seven months yesterday, Jeremy Grantham said he had plans to pare equities.

Coincidence? Most likely.

The chairman of GMO, an asset-management firm overseeing $107 billion, and one of the most famous stock-market bears told a group of investors at Schwab's (SCHW) Investment Outlook 2011 conference in Boston that his firm was already thinking more conservatively.

Stocks, he said at the gathering not far from GMO's headquarters, are "dangerously overpriced." Still, investors likely would push up the S&P 500 Index to 1,500 before a drop he declined to quantify. The benchmark yesterday fell 1.9% to 1,295. Excluding a decline of 2.1% Feb. 22, the S&P 500 last dropped so much in August. In the January letter, Grantham said the index was "worth about 910."

As Grantham put it in his most recent letter, in January: "We have all been well-trained market dogs, salivating on cue and behaving exactly as we are expected to." As such, "the bulls are living on borrowed time."

"Know you are being manipulated into speculation," he said.

During his talk, Grantham said that as the Obama administration enters its third year, it will surely benefit from the sort of market rally that has accompanied the same mark for all modern presidents.

Traditional administration policies set by what he sarcastically described as the "completely independent Fed" can be counted on to maintain market momentum. He described QE2, the government's bond-buying program, as "year three on steroids."

"It always gets a kicker and this is extra," he said.

Pain in the commodities market factors into Grantham's outlook. "We are running out of everything," he said, and dwindling resources will put "strong, but intermittent, pressure on commodity prices."

Global warming will add to agricultural price pressures as will what he described as the "worst year in history of farming globally," specifically, weather-related disasters like the massive flooding in Pakistan. Overall, the agricultural world is "putting more and more fertilizer and getting a decrease in production."

Grantham said he is still fully analyzing the oil market, in light of the political unrest that has driven up the price per barrel to $105. He sees a larger issue with demand remaining unreasonable given the shrinking and finite supply.

The U.S., as the world's largest oil consumer, is doing nothing to help its own cause. Though many tout conservation, the country remains the "most inefficient" in the world, with poorly designed commercial property burning through oil and what he feels is an unreasonably fearful reluctance to follow the rest of the world in adding a substantial fuel tax.

The British-born Grantham dismissed the current hand-wringing over U.S. debt, describing it as "not real world." What is real, he said, is high unemployment, income discrepancies and stagnant hourly wages. Also of real world concern is the decline of educational standards and a lack of global competitiveness in math and science, he said. Decrying the government's focus and spending on health care for the oldest segment of the population, while slashing education funding for youth, he let out a mock chant: "Death panels ... death panels!"

As for gold, there may be money to be made, but he questions the ultimate importance of a metal that is "used for nothing."

"In a world running out of everything, jewelry is not our problem," he said.

--Written by Joe Mont in Boston.



>To contact the writer of this article, click here: Joe Mont.

>To follow the writer on Twitter, go to http://twitter.com/josephmont.

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