ST. LOUIS (Alpha Found) — Two of the most awaited invest reports have hit the market almost simultaneously, and are starting to shape it. GMO’s Jeremy Grantham released a twofer with his third and second quarter letters bundled together.PIMCO’s Bill Gross released his monthly letter for November.
It’s particularly interesting against the backdrop of the recently conducted Bloomberg global poll.Respondents chose, predictably, Warren Buffett as the wisest man of the markets, followed closely by Gross. In fact, in the US, Gross was regarded as Buffett’s equal.
We don’t discount Gross’s wisdom. He ranks very highly in Alpha Found’s Investor Reporting Analytics, but we do believe it has a lot more to do with marketing than raw appeal. After all, the same respondents placed Nouriel Roubini third despite his recent elevation and lack of a consistent track record.
For our money, Grantham’s wisdom is more accessible, his thought more structured, his forecasts more specific, and his analysis more rigorous than Gross’s.
It’s not strictly fair to set them side-by-side because they have different emphasis. However, both are used by the market to divine the future because they inevitably look to the future to justify part of their past performance. Let the comparisons begin.
Let’s start with the soft stuff and then move to the hard stuff. If you’d just like to see visualizations of their work, scroll down.
- Both gurus use humor, often sarcastic though not gratuitous.
- Gross can be a show off with literary and pop-culture analogies.
- November’s effort does not work well with the opening from Shakespeare (to illustrate what, exactly?) and ending with Dylan Thomas.
- Gross attempts personal, folksy, ‘regular-guy’ introductions and conclusions that indicate his intended audience is the retail investor and media market.
- Gross maintains continuity between newsletters by repeating or amplifying key themes and topics.
- Gross is especially successful in conveying a sense that he is sharing shop secrets with the reader. Very effective.
- Gross generally speaks to his ‘book‘
- Grantham embraces a wider scope of topics and is utterly unafraid to be political.
- Grantham is loyal to ideas over opportunities and circumstances.
- Grantham is self-deprecating about the consequences of being a value investor.
- Grantham suffers a tension between his commitment to value investing (long-term discipline) versus his disdain for inflexibility (situational responsiveness).
- Grantham is writing for a knowledgeable and sophisticated audience that is not easily distracted.
Substance – Where they Agree
- Both are in synch on the psychology and motivations for the sharp recovery after last year’s capitulation.
- Both are in synch that the recovery has reached its apex for now.
- Both attack author Jeremy Siegel for his book Stocks for the Long Run. Grantham calls it dangerous. Gross calls its premise a fallacy. Ouch.
- Both agree that the recovery will look very different from prior experiences – an intractablelong-term malaise. Grantham describes it in Biblical terms as ‘7 lean years’. Gross calls it the New Normal, though we call it the Old New Normal.
- Grantham notes that US GDP growth has slipped below its 100 year trend of 3.5%, and has been decelerating sharply.
- Gross warns that nominal US GDP growth needs to be 4%p.a. just to stay afloat.
- Both agree that the process of delevering is incomplete.
- Gross foresees a long period of delevering to reset to asset price appreciation matched with GDP growth rates.
- Grantham warns that we must consume less, pay down debt, learn to be less capital rich, and global trade balances must readjust.
Emerging Markets will offer higher yields and profits than developing markets.
- Grantham fears an emerging market bubble must eventuate.
- Grantham fears China ’stumbling’.
- Gross praises China for spending its stimulus on ‘real things’.
- Assets, especially in developed markets, are overvalued by several measures, especially thecult of the market.
- Gross highlights the artificial stimulation of assets via leverage, securitization, and the belief in asset appreciation rather than production of goods and services.
- Grantham warns investors to beware of the unemployment quick-fix that is providing short-term corporate profits.
- Interest rates will remain low.
- Gross undertook no little amount of advocacy aimed at the Fed to keep rates low, which helps PIMCO.
- Gross did warn that debt instruments offer little growth in future income or value appreciation.
- Japan is instructive for the current situation in the US.
Substance – Where they Diverge
- Grantham makes specific forecasts whereas Gross makes general ones.
- Grantham is scathing of the ‘Teflon men’ who remain employed despite having to beg the government for life support. But he is more scornful of the government sorts for agreeing to bail them out, and heaping new risk upon old risk.
- Gross reverts to utilitarianism and says the spending, loose credit, and cheap money are necessary to prevent Armageddon.
- Gross presents an ends justifies the means view of the present circumstances. Grantham warns that the means are so blighted that the end will not only be unjustified, it will be worse.
- Grantham highlights the rush to risk driven by the Fed – again, and as if the last lesson wasn’t hard enough.
- Grantham reminds us of ‘co-ordinated incompetence‘ such as the Smoot Hawley fiasco. Oddly, he does not see the danger advancing on the horizon of mass co-ordinated incompetence in the form of health care ‘reform’, rising taxes, increased regulation, and expanded entitlements.
Wordle.net Word Picture for Bill Gross November 2009 Newsletter
Wordle.net Word Picture for Jeremy Grantham Newsletter, Q3 2009