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Jeremy Grantham of GMO is out with his January letter (.pdf) covering 4Q08, and the whole thing is well worth reading (posted in full below). Grantham comments on his current 'disillusionment' with our political and financial leadership, and on Barack Obama's 'missed opportunity' in his choice of financial advisors.

Here are excerpts from Grantham's current recommendations for investors:

Slowly and carefully invest your cash reserves into global equities, preferring high quality U.S. blue chips and emerging market equities. Imputed 7-year returns are moderately above normal and much above the average of the last 15 years. But be prepared for a decline to new lows this year or next, for that would be the most likely historical pattern, as markets love to overcorrect on the downside after major bubbles. 600 or below on the S&P 500 would be a more typical low than the 750 we reached for one day.

In fixed income, risk finally seems to be attractively priced, in that most risk spreads seem attractively wide. Long government bond rates, though, seem much too low. They reflect the short-term fears of economic weakness and the need for low short-term rates. We would be short long government bonds in appropriate accounts.

As for commodities, who knows? There were a few months where they looked like a high-confidence short, but now they are half-price or less, and are much lower confidence bets.

In currencies, we know even less. It is easy to find currencies to dislike, and hard to find ones to like. There are no high-confidence bets, in our opinion.

For the long term, research should be directed into portfolios that would resist both inflationary problems and potential dollar weakness. These are the two serious problems that we may have to face as a consequence of flooding the global financial system with government bailouts and government debt.

Jeremy Grantham Letter_4Q08

Hat tip: Todd Sullivan

Source: Jeremy Grantham: Slowly Invest in Global Equities