This copy is for your personal, non-commercial use only. Read the following edited excerpts for more. Montier: MMT can be decomposed into a few simple statements. The U. Three, MMT has a [different] operational description of the monetary system.
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According to James Montier, now is the time to allocate away from U. He's a regular contributor to GMO's library of white papers and research studies on topics ranging from productivity to strategic asset allocation to contrarianism, and more. For the last decade, GMO has consistently forecast poor performance for U. Its widely followed seven-year forecast has predicted annual returns at or below zero for large-cap U.
It causes investors to overestimate returns and underestimate risk. He warned that investors are doing just that by allocating toward U. He acknowledged that was a banner year for equities, but was peculiar because growth outperformed value, as it has done for the last decade.
The same was the case with U. Montier acknowledged that GMO has not been fans of the U. He showed data that the current business expansion is the weakest, slowest and longest post-war expansion. Productivity has been slower than GDP growth and real wages have barely grown. That inequality is not a good foundation for a repeat of strong equity performance, according to Montier.
But can earnings come to the rescue? Comparing the US to the rest of the world, Montier said the difference is not due to sales growth, although margins in the U. Buybacks have been a significant part of the U. The US outperformance was due to buybacks and multiples, Montier said. Can that continue? Looking at valuations, the U. To get a reasonable return from U. To get to 5. How much must you suspend beliefs? To get reasonable returns from profitability growth, our profitability would need to increase from 7.
Could buybacks drive the market higher? The problem, he said, is that every company cannot pursue buybacks simultaneously. That creates a systemic vulnerability, through excessive leverage. Investors are underwriting those risks at nearly times earnings. A quarter of U. The key threat to U. Cash flow closely tracks NIPA profitability, he said.
But NIPA profits are at nearly their highest level since Two hurdles prevent us from being contrarian: human nature is social and we like a safer, warmer environment that breeds conformity; our brains feel social pain the same way we feel physical pain.
The second reason is career risk, which Jeremy Grantham has frequently cited. That leads to momentum in stock prices and movement away from fair value. That means emerging market equities, and the perception that they are riskier is not as true as it was in the past. He cited data showing that multiple and GDP growth in those markets needs to be much more modest than in the U.
Montier said that GMO owns essentially no U. Read more articles by Robert Huebscher. James Montier: Get Out of U. Sponsored Content. Trending Topics View All. Accessing the Nasdaq with Built-In Buffers. Week Month Year Popular. Disconnect the Dots: Main Street vs. Wheels Up!
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U.S. Stocks Are “in the Realm of Extreme Belief,” GMO’s James Montier Says
GMO's research library. Montier's articles in GMO's research library. Debating Jeremy Grantham on mean reversion: Montier gives an example of an issue the team has debated recently--how long it takes for markets to revert to their long-term averages. Corporate concentration and low interest rates: How GMO is reconsidering these variables and their impact on the asset-class forecasts it makes. How GMO incorporates its asset-class forecasts into the multi-asset strategies it manages. The appeal of a "robust" forecast that's meant to help portfolios withstand various potential outcomes.
Why a GMO Strategist Is Bearish on U.S. Stocks but Positive on Modern Monetary Theory
The coronavirus crisis has created an extraordinary buying opportunity in emerging market stocks for anyone hoping to save for their retirement, say two independent investment houses. Those gains, they add, are estimated in so-called real terms, meaning in addition to any general price inflation. They are typically in slower-growing businesses. Naturally investors will need strong nerves to buy into the maelstrom of the global pandemic. But those who are investing retirement accounts such as a k or an IRA should be thinking in horizons of five, 10, or even 20 years, financial advisers say. Ben Inker, head of asset allocation at GMO, confirms that the collapse of emerging market stock prices this month has added to what was already an enormous opportunity for investors. By that measure, GMO numbers estimate that a broad basket of emerging market stocks bought today are likely to generate annual real returns of 7.
MiB: James Montier, GMO
This copy is for your personal, non-commercial use only. They are over 30 now on the Shiller scale, while the long term average is around Investors should be avoiding U. GDP has grown at 1. Wages are flat, and productivity is low. On top of that are what he calls the political problems. The post-Reagan era is marked by huge inequality, and that, says Montier, is a problem for any society.