More from Grantham: S&P to 585?

Jeremy Grantham at GMO has put out Part II of his "Reaping the Whirlwind" two-part series on the credit crisis' aftermath(s). Among other things, he argues that there are benefits to the crisis, including increasing personal savings, an end to the hedge fund era, a reminder that government officials are not to be trusted, and an opportunity for a cleantech Marshall Plan, among others. (Fair enough, but at the price I'd rather we had some better lessons.)

Getting from here to there still won't be fun, he argues. Despite fair value for the S&P 500 being in the 975 territory, we are likely to see profit margins for the S&P 500 overshoot on the way back to normalcy -– and they're still 21% above normal. If they do that, you could see trough levels as low as 60% of fair value, Grantham posits, or 585 on the S&P 500 (versus today's 877).

Comments

[Michael Zhuang:]

Mr. Paul, what insight did you add by repeating other people's opinion?

2008 Oct 27 01:07 AM

[zalo:]

I don´t understand the panic that has engulfed the whole world. Here are the facts:

1) The world is going to continue and the people are going to continue to demand goods to fulfill their needs.
2) There is no negative supply shock that can put in danger the global economy. i.e. the moon is not falling down, the sun is still there and there is no world war.
3) Financial institutions are now as safe as their governments.
4) Corporations have basically sound balance sheets.

So, basically what we are fearing is fear itself. It is PURE NONSENSE.

2008 Oct 27 02:26 AM