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Berkshire Hathaway Inc. Message Board

  • hjclasvegas6969 hjclasvegas6969 Nov 19, 2013 6:13 AM Flag

    Jeremy Grantham's GMO: "The S&P Is Approximately 75% Overvalued; Its Fair Value Is 1100"

    morning jad.

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    • His analysis is amazing. It's all based on reverting to the mean of prior eras. Imho, the S&P 500 is still in the range of a reasonable valuation. It's not cheap, like when I loved it. The vast majority of my money's in Southern California real estate, with some in annuity products and some in equities. So I can let the equities ride and take the dips without losing my lunch. If growth accelerates, we could have a golden stock market era; It's a huge if. I'm beginning to suspect that Krugman's right and we're in a chronic demand shortfall. In the past 20 years, Asia has exploded with economic growth at very low wages, while America basically hasn't expanded well-paying middle class employment. Since the world economy depends on the American consumer for demand, we seem to have created a chronic demand shortfall. How then can the stock market be fairly valued. Persistently slack demand means interest rates can be expected to stay low. Companies increase profitability by controlling costs while pursuing global growth opportunities where the investment has flowed. It's not an ideal situation but then again the valuation of the market is not Pollyanish.

      • 2 Replies to strat58cat
      • start,

        « Imho, the S&P 500 is still in the range of a reasonable valuation. »

        Only if your expectations for the future (the return you hope to make, net of inflation) are exceeding low.

        The GMO author writes:

        "The less pleasant way we could be wrong is if 5.7% real is no longer a reasonable guess at an equilibrium return for U.S. equities. If equity returns for the next hundred years were only going to be 3.5% real or so, today’s prices are about right."

        That's all I dare quote here, but the remainder of that paragraph IS required reading.

      • [ I'm beginning to suspect that Krugman's right and we're in a chronic demand shortfall. ... Since the world economy depends on the American consumer for demand, we seem to have created a chronic demand shortfall.]

        Strat, so duh solution to duh problem is we need to CONvince the AmeriCON CONsumer to take on more and more debt. At what point CON we allow him/her the luxury of not taking on more debt as a percentage of their earning capacity in order to keep this house of cards going????

        At the moment the only growth you're seeing in this CONtry is on account of government stealing money from tax payers and burdening future generations with ever larger amounts of public debt in order to CONpensate for the new debt that isn't being taken on by private individuals. We're deficit spending 8% (and more in previous years) in order to get 2% growth - which we've been doing non stop for the last 5 years, $6 Trillion in new debt and counting.

        So duh plan is, if we can't fool them into borrowing and spending more beyond their means, we'll do it for them. Sounds like a good plan, what could possibly go wrong???? 40 More Years!!!

    • Jeremy grantham believes that fair value is a linear line with practically no variation as the discounted value of all future cash flows dont chnage much. Thats fine as long as discount rates stay static, however in reality they shift with interest rates, inflation, and mood.

    • lol, jad, what RULE did you break now, your post isn't there ??

    • Whiner who went heavy Cash at Dow 11,000.
      He only buys trees.
      TLS

 
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