Has hell frozen over? It would certainly appear that way, as legendary perma-bear Jeremy Grantham actually sounded a note of optimism during his opening keynote at the Morningstar Investment Conference 2015 in Chicago on Wednesday afternoon. Of course, it took a while to get there.
“It’s not that I’m a pessimist, it’s that you all are overly optimistic,” the CIO of Grantham Mayo van Otterloo said to laughter.
He then listed 10 items that will influence (negatively, of course) the coming investment environment and world in general. They were:
1). Homo sapiens’ limitations-Grantham noted that humans are conditioned to be optimistic to a fault. We remember the good and forget the bad.
2). Economist ignorance—This optimism translates to economist and analyst outlooks who believe “everything is infinite and we’ll never run out of everything.
3). Oil—It’s the biggest finite resource we have and extraction costs are skyrocketing as it becomes more scarce.
4). Climate change—This optimism also has certain parties denying the “overwhelming” evidence of climate change.
5). Food shortages—Climate change will lead to food shortages which will destabilize poor countries.
6). Income inequality—“You cannot have a large swath of the labor force that are static and not advancing.”
7). GDP pressure—Will have the most impact on developed countries.
8). Loss of corporate stakeholders—Corporations used to take care of the various stakeholders, including employees and the surrounding city in which it is based. Now it is about profit maximization and “to hell with everyone else. And the discount rate now means your grandchildren essentially have no value.”
9). Deficiencies at the Fed—His ire at the Fed was a theme throughout Grantham’s presentation. “They have a bad job description that they execute badly.”
10). Asset bubbles—Are we in one now, Grantham rhetorically asked. Yes, but it is not behaving as well as others because of interference from the aforementioned Fed, he claimed.
“The moral hazard of the Fed is profound,” he added. “They essentially say if we’re in a bull market than we’re on our own, but if it’s a bear market they’ll act. This is very good for stock options, and 80% of remuneration comes from stock options and bonuses. But it’s not good for everyone else.”
After delivering his 10 items, he went into a detailed discussion of each before (shockingly) ending on a high note.
See Also:
- 64% Expect Up Year for U.S. Stocks in 2015: Survey
- Gen X Low on Retirement Optimism: Northwestern Mutual
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
