Juggling Dynamite – The Blog

Bear markets only harm investors who stay fully invested

daniellepark — Wed, 02 Jul 2008 09:35:00 -0400

July 2 (Bloomberg) -- It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20 percent since December.

The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income." See: Buffett's Berkshire Has Worst First Half Since 1990.

I have long been a fan of Warren Buffett and his investment discipline. But the fact is that Berkshire is a publicly traded company. This means that Buffett is not actually in charge of Berkshire's share price. Like all publicly traded securities Berkshire shares are driven by the ebb and flow of mass psychology in the market auction. When assets in the world become wildly over-priced as they did from 2005-2007, Berkshire's shares are swept up in the over-optimism and over-pricing too. In market cycles, what goes up, must come down, and now Berkshire is losing value along with the overall markets. So much for it being a "quality" "defensive" holding.

All that we can control is our exposure to the market cycle. Doing that well is the source of all lasting value. This is why the “trick” is having a discipline to buy and sell market assets, not buy and hold.

Oh, but then as the talking heads on Kudlow Company were pointing out last night, if you have 30 years or more for your equity investments to prove profitable, then you can just passively hold 'em. No need to fret about timing your exposure. Always buy, never sell. Don't worry be happy.

As Barry Ritholtz points out this morning on his blog in Pervasive Pollyannas of Prosperity: "Words such as these can only be spoken by someone who has never worked on a trading desk or managed assets professionally -- or if they did, they lost most of their clients' money."

No truer words were ever spoken. Amen.

Decoupled where?

daniellepark — Fri, 27 Jun 2008 15:02:00 -0400

The global equity sell-off resumed with great force this week all around the world. As we survey the carnage, I am wondering how the "decoupling" pundits are faring now.

A recent interview (worth reading) called "Inflation not the problem" with global asset strategists Albert Edwards and James Montier summed up something I was writing about on this blog last year. Now we are seeing the impact of the Western slow down on emerging market economies:

"Emerging markets earnings optimism is crumbling just as quickly as the developed markets. There is no decoupling at all, so if you've got a sharp slowdown in growth in China and in emerging markets generally, I think perceptions will be totally transformed in six month's time. But all you can do is sort of warn of these things."

This is a problem for commodity perma-bulls that look to continued Asian demand to offset a prolonged decline in western demand. Their hope ignores how reliant Asia is on China continuing a 10% + growth rate. And how dependent China is on America and other western economies. Slowing demand will chip away at Asia's export driven expansion exponentially.

Westerners are spending less on cars, flat-screened televisions, cellular phones, name-brand clothing and other goods manufactured in Asia. The US consumer alone accounts for 19% of the world GDP demand. Housing and its leverage was the key to world consumption over the past few years, and its pull-back now is having an enormous drag on world economies.

In light of the worldwide de-levering and global earnings contraction now underway, asset prices even after recent declines, are still horribly expensive.

Buffett interview clip

daniellepark — Thu, 26 Jun 2008 10:25:00 -0400

Warren Buffett gave an interesting interview with Bloomberg yesterday. You can watch the video clip here.

Highlights:

He has endorsed Obama for President in 2008 (remember Paul Volker has as well)

He's concerned about ``stagflation,'' or slowing in the U.S. economy while inflation accelerates:

``We're right in the middle of it right now. I think the `flation' part will heat up and I think the `stag' part will get worse.''

Buffett, 77, is the world's richest person, and runs a company with a $72 billion portfolio. He's said the U.S. housing slump has been a drag on Berkshire's earnings, adding today he's unsure when the economy will recover.

"Capitalism has downturns... We are in one now. But we will come out of it, just like we did before...It's not going to be tomorrow, it's not going to be next month, and may not even be next year."

I was talking about looming stagflation last year and the long always cheerleaders were pooh-poohing it. I have always said we will eventually come out of this difficult economic climate. But just because we will come out of difficult times eventually, does not mean investors should blindly stay the course throughout the downturn. Holding equity investments over the next few months is a very high risk proposition. The market will not be able to accurately price and discount the coming hit to earnings until we are further through the delevering process.

All the people urging investors to "buy the dips" over the past 18 months have been painfully wrong. Beware of those saying the same thing now.

Steep declines in US home prices still accelerating in April

daniellepark — Tue, 24 Jun 2008 13:56:00 -0400

Today we received the latest instalment in the S&P Case Shiller Index. For the month of April, the 10-City Composite posted a new record low of -16.3%, and the 20-City Composite recorded a record low of -15.3%.

No one should be surprised that the cities that experienced the greatest gains in the latest real estate boom were the biggest losers. Las Vegas and Miami share the dubious distinction of being the weakest markets over the past 12 months returning -26.8% and -26.7% respectively. We should recall that these markets had some of the fastest growth in the 2004/2005 period, with annual growth rates of more than 53% and 32%.

Let’s look at the real-life math of these numbers:

BNN interview clip from June 25 at 9:20am

daniellepark — Tue, 24 Jun 2008 11:30:00 -0400

Ms. Park was the Guest Portfolio Manager on BNN Wednesday June 25 at 920 am on Market Lookahead. You are able to see the clip on their web here for a limited time.

US consumers are losing faith in financial firms, survey finds

daniellepark — Tue, 24 Jun 2008 10:48:00 -0400

Given my post yesterday I was a little heartened today to see the results of a recent survey showing financial consumers (at least in the US) may be finally waking up:

"U.S. consumers are more sceptical than ever that financial service companies have their best interests at heart, according to a survey released on Monday.

The survey of 5,000 consumers, conducted by Forrester Research Inc, ranks major financial service providers according to the perception of how important clients' financial interests are to a company.

It found A.G. Edwards, a brokerage unit of Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz), and other troubled companies such as American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) and National City Corp (NCC.N: Quote, Profile, Research, Stock Buzz), to be among the biggest losers of their customers' faith.

"The subprime mortgage crisis, sagging stock markets and falling rates of return on everything from savings accounts to real estate have left consumer feeling less confident," said Bill Doyle, a Forrester analyst.

In Juggling Dynamite I liken the financial sales firms to very profitable drug pushers in our society. So far at least, Canadian consumers still seem to be asleep in la la land loving their banks/broker/dealers. Time will tell if they too may begin to wake up. I guess it depends on how many Canadians suffer big financial losses over the course of the present down cycle in real estate and financial markets this time. Stay tuned.

This is why you never want the broker-dealers telling you what to do with your money

daniellepark — Mon, 23 Jun 2008 14:10:00 -0400

All through the past couple of years as financials have ground down to one new low after another, the broker dealers of the world kept urging us to buy the dips. Now that these stocks have evaporated enormous amounts of investor capital, the broker dealers are now starting to issue "underweight" recommendations in their typical after the horse has left the barn style.

Today Goldman Sachs & Co strategists urged U.S. stock investors to "underweight" [that’s code for sell] the nation's financial and consumer discretionary sectors, admitting that it was mistaken when it upgraded both sectors just seven weeks earlier. See: Goldman cuts U.S. financials, admits goofed on upgrade

This is something I try to warn investors about every day, but unfortunately most have to experience the pain of it first hand. Broker-dealers are there to sell us things; they are not there to help us manage our risk. To this day most investors are taking their investment advice from stockbrokers and mutual fund sales people.
My heart goes out to the average investor. It should be illegal but instead Wall and Bay street types enjoy significant socio-economic status in our society.

If my children ever tell me that they want to become investment bankers some day I will know that I have failed in their moral instruction.

Asia leading world markets lower

daniellepark — Mon, 23 Jun 2008 13:21:00 -0400

Asian stock markets dropped broadly on Monday, with Tokyo and Hong Kong down for the third-straight session. China's official news agency reported that the stock market regulator planned to control the fundraising pace of listed companies and to clamp down on market rumors. See Asian stock markets decline and Asia's IPO market cools.

China's Shanghai Composite is now down more than 55% from its peak in 2007. And so far, still dropping....

This is what risk looks like. I suspect North America has some catching up to do in the months ahead.

Oil price pushing consumption down (its about time!!)

daniellepark — Mon, 23 Jun 2008 13:08:00 -0400

The inevitable is happening, people are finding alternative energy and alternative methods to gas guzzling.
Perhaps a time of insanity and waste is coming to an end for a while. We can hope....

Who's bearish now?

daniellepark — Thu, 19 Jun 2008 15:19:00 -0400

The trouble with being an unbiased, independent, market realist is that you tend to sound alarm bells about impending risks before most others seem to notice. Over the past couple of years I have been accused of being "a bear" for voicing concerns about asset bubbles, excessive leverage, reckless spending and risky investment markets at the end of this super-long (credit-juiced) economic expansion. Its ok, I can take being called a bear when risks warrant extra caution. As I see it, becoming appropriately bearish during part of each cycle is necessary in order to provide valuable risk management.

This past week it seems that market psychology has started into the next leg down of angst and belated worry. New "bears" have been crawling out of their caves all around the world of late. Yesterday a big bearish growl sounded from the research team at Royal Bank of Scotland: RBS issues global stock and credit crash alert

"The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

RBS warning: Be prepared for a 'nasty' period. Such a slide on world bourses would amount to one of the worst bear markets over the last century."

"Decoupling" revisted: all boats still sinking

daniellepark — Thu, 12 Jun 2008 15:14:00 -0400

Those that argued emerging economies would prosper and decouple from a western world slowdown should now be hanging their head.

International markets that were happily coupled during the expansion from 2003-2007, are now still painfully coupled in the ongoing contraction. John Authers brings us some excellent charts today in "Decoupling thesis is wide of the mark." Watch the clip here.

It would seem that the bear market of 2007 is still very much in process around the globe. One cannot help but feel sadness for the hopeful emerging market investors in places like China that were lining up around the block last year to open their on-line trading accounts with borrowed money as capital. With some Asian markets now down more than 50%, the experience has undoubtedly been brutal. See Shanghai index below 3,000.

Vancouver this weekend

daniellepark — Thu, 12 Jun 2008 14:41:00 -0400

Ms. Park will be speaking at the World Gold, PGM and Diamond Investment Conference this weekend June 14 and 15 in Vancouver, BC.
Cambridge House is organizing the event with a solid line up of expert speakers as well as presentations from leading companies in the metals and resource sector.
You can learn more or sign-up up for the event free at www.cambridgehouse.ca.

OPEC: "Current oil prices are unjustifiable"

daniellepark — Tue, 10 Jun 2008 09:45:00 -0400

OPEC President Chakib Khelil said that had it not been for the weak dollar, political tensions and speculation, oil prices would probably be around $70 a barrel. “In terms of fundamentals, there is no problem of supply and demand. There is much more a bubble due to speculation, which is based on a depreciating dollar and geopolitical tensions,” Khelil said yesterday.
See Current Oil Prices are unjustifiable.

Saudi Arabia yesterday called for an urgent meeting of oil producing and consuming countries to discuss what it called the “unjustifiable rise in oil prices.” It also offered to coordinate with the Organization of Petroleum Exporting Countries (OPEC) and other major producers to ensure adequate supply in order to curb prices.

Co-ordinated top down efforts to support the dollar and curb speculation, along with ongoing demand destruction from a slowing global economy will ultimately prevail to drive commodity prices down from recent heights. Once it begins in earnest, the velocity of the correction is likely to be shock the many that have been conditioned by a 5 years bull run to expect only upside in these markets.

Beware of those selling “long-term” investment stories. We must survive the short term before we can benefit in the longer-term.

Quality of US Fed "reserves" eroding

daniellepark — Mon, 09 Jun 2008 15:14:00 -0400

Source FRB: Federal Reserve

The problem with the Feds acting as back stop for the junk paper dealers is that now almost half of the Fed vault is full of junk. In just the past 12 months, Fed holdings have slipped from 92% AAA treasuries to just 57% AAA with the remaining 33% a varied assortment of "mystery meats."

This begs the question: how much junk can the Feds absorb without sacrificing their own financial credibility?

US Dollar and Oil: the arm wrestle continues

daniellepark — Fri, 06 Jun 2008 15:00:00 -0400

This week as oil spiked the energy heavy Canadian Index topped fresh highs. But before we Canadians bring on the marching band, let us see one thing clearly. The parabolic spike in the price of oil is not a good thing for anybody. It is not a healthy sign of a strong global economy. As I have said many times of late, recent jumps in the price of oil have nothing to do with consumption demand. If anything constructive is coming from rocketing prices, it is that consumers all around the world are in fact quickly reducing consumption.

Fencing after the horses have left the pasture once again.

daniellepark — Wed, 04 Jun 2008 12:18:00 -0400

The best time for tighter regulation on banks and off-balance sheet accounting would have been in 2001 and coming out of the ENRON fiasco. But that did not happen. So now we have to make the necessary changes to in a reactive way to clean up the mess. Unfortunately it will be all hitting the books when the economy and credit markets can least afford it.

Connecting the dots

daniellepark — Tue, 03 Jun 2008 16:03:00 -0400

In many ways we live in desperate times. Connecting the dots of how we got here is not too hard. Too much credit, too much greed and too much consumption brought us to poor economic health and great imbalance in world markets. Credit-frenzied and wasteful western consumption, on top of emerging market demand spurred great price gains in world commodities. Sub-par yields and returns in conventional equity and bond markets over the past 5 years, brought conventional investors to seek out commodities as a hot new investment class. All of this frenzy fuelled inflation and soaring costs which are now stemming the ability of consumers to consume and the ability of lenders to lend. We are coming full-circle as we must. But the ride back to sanity and equilibrium is proving painful.

Today's credit crisis: bigger in scope and impact than the 80's S&L mess

daniellepark — Fri, 30 May 2008 15:44:00 -0400

Excellent article today from Mike Shedlock on S&L Crisis vs. Current Crisis.

While we will not know the final damage and economic cost of the 2000's credit crisis until a few years hence, it is helpful to be mindful of other incidents that were similar in history and try to compare their relative scope and magnitude to our present facts:

"Add it all up and the upcoming bank crisis is going to be far greater than what happened in the 1980's even though the number of failures will be far smaller."

Interesting data. Worth the read.

When the US catches a cold, Canada catches a ....

daniellepark — Fri, 30 May 2008 12:53:00 -0400

Canada is likely about to learn once again that we are in fact still heavily tied to the fate of our southern neighbour. And with commodities and energy now accounting for more than 50% of our stock market composite, the ongoing aggregate demand correction, coupled with recently announced regulatory crackdowns on speculative loop-holes in commodity markets now threatens to hit us harder than many have so far dreamed possible.

It is true we have hard assets and resources that the world wants to consume, but even strong secular demand cycles can and do correct as a normal part of the economic cycle. Just a casual glance at an Andex chart since 1950 shows any that will see it that Canada and our stock markets have never been immune to a downturn in the US and the rest of the world.

Even where Canada has escaped following the US into outright recession as we did in 1953, 1960, 1974, and 2001, our market corrections have always been nothing short of stunning. We can hope that this time will be different. The odds do not, however, favour such hopes...

Next BNN appearance: Wed May 28 at 9:20am

daniellepark — Tue, 27 May 2008 11:56:00 -0400

Ms. Park will be the Guest Portfolio Manager on BNN tomorrow, Wednesday May 28 at 9:20 am. The clip is available afterwards for a few days on the BNN web site here.

Housing prices lead consumer expectations to 1973 lows

daniellepark — Tue, 27 May 2008 11:07:00 -0400

I was listening to the ever bullish Larry Kudlow in New York a couple of weeks ago and he was saying that he believed the housing recession was over-blown and really limited to a few specific areas. No doubt Larry lives in a bit of a bubble, but one has to wonder how (or why) an economist could espouse this optimistic belief despite the hard cold data. Today we got the next instalment in the Case-Schiller housing Index showing us house price results to the end of March 2008.

A few months back I noted that the accelerating pace of house price declines suggested this Index would be "off scale" by the time we received the March-April data. This month the lower scale was infact extended to -16% in order to accomodate the read below the previous bottom of -15...

Meredith Whitney today: "Credit crunch is far from over."

daniellepark — Tue, 27 May 2008 09:26:00 -0400

Oppenheimer's Meredith Whitney was on Bloomberg this morning explaining how the credit crunch will continue to impact banks and the broader economy over the months ahead.

Whitney is one of my favourite analysts. She is bright, well-informed, and has been refreshingly forthright in calling ~~bullshit~~ foul on the shell game that has supported financial profits over the past few years. She was one of the earliest Wall Street analysts to sound the alarm. She is also very good at breaking the complexity down into real life terms.

Watch the clip here

Bear market thesis so far still alive

daniellepark — Mon, 26 May 2008 21:21:00 -0400

The stock market rally of the past 2 months has done nothing to refute my concern that we are only in the early stages of a bear market that will continue for the next several months. Of course I could be wrong. I cannot see the future. I can only weigh the evidence so far. But so far I believe that the preponderance of economic evidence continues to mount against the bullish case.

The fact that many stock markets have staged a rally since the March lows has been cited by some as bullish evidence that the worst is now behind us and happy days will soon be here again.

For some valuable perspective on how bear markets have historically moved, watch this May 26 clip from John Authers at the Financial Times.com: Oil and the Markets.

Great charts John. Good work.

260 US Mortgage Lenders now bankrupt

daniellepark — Mon, 26 May 2008 14:57:00 -0400

In June 2007, I noted that 80 US Mortgage Lenders had then gone bankrupt since late 2006. We predicted that many more would follow. Today, less than 1 year later, the number has risen 225% to 260 according to Lender Implode.com. outpacing even our bearish calls. The number continues to rise weekly as the economic slowdown plays out.

Meanwhile one of the earliest bears to call the present crisis, Prof. Roubini still remains pessimistic over the economy and points out that stocks at present levels are dramatically under-pricing the length and duration of the on-going US recession:

Oil still bubbling up-- buyers beware

daniellepark — Mon, 26 May 2008 14:35:00 -0400

Following up on my entry from last week and its graph of per capita oil consumption rates, this site gives us the 2008 breakdown on a country basis.

Here we can see that although Canada is number 2 for per capita consumption, because there are less of us in the country, we rank number 9 in terms of overall consumption totals. Meanwhile notwithstanding the incredible populations of China and India, together they account for just under 12% of world demand. The US accounts for over 25%. This underlines why the ongoing US recession will put a slack in oil demand (once speculators move on). It also makes the point again why we in North America have lots of room to reign in wasteful consumption habits.

Some interesting comments in the past few days on present oil prices...

Japan's trade surplus falls by half despite ongoing emerging market demand

daniellepark — Thu, 22 May 2008 14:24:00 -0400

The drag of present oil prices is evident today in Japan’s trade surplus data for April. Japan’s trade surplus (exports over imports) “tumbled by a worse than expected 46.3% in April due to the rising cost of energy imports and falling exports to the US economy,” the government said Thursday. “Exports to the European Union grew by the slowest pace in more than two years.”

“The data showed that Asia’s largest economy continues to be pressured by a global economic slowdown,” despite “brisk shipments to fast-growing emerging markets.”

The point to be understood here is that Japan’s exports over imports shrank by almost half in April, notwithstanding ongoing strong demand from emerging markets.

Emerging countries are just not nearly as good at consuming as westerners. As a point of reference, US consumers in 2006 consumed 9.7 trillion dollars worth of goods compared to about 1.3 trillion of goods consumed in China and 750 million in India. US consumers are almost 10 to 1 better at buying goods than Chindian consumers. This is why a big contraction in western consumption inevitably brings a big contraction in world GDP.

The truth about global oil consumption

daniellepark — Thu, 22 May 2008 14:18:00 -0400

The following chart lends perspective on who is exerting the greatest demand on global oil supplies.

The source of the data is from BP and Nationmaster. The chart is from the Sudden Debt blog.

I have not yet found a version updated to 2008, but the relative demand of the players has not changed too much in 2 years.

We can see that North America and other developed countries are by far the greatest oil consumers. This is why suggesting that emerging market demand is the problem behind current prices is ludicrous. We westerners, and particularly in North America, have simply been gorging like pigs at a trough. It is actually embarrassing. For us to complain that emerging countries are causing the demand stress is the equivalent of obese people complaining that the malnourished now expect to share in the daily food supply.

Energy "investors" a key element in driving price

daniellepark — Wed, 21 May 2008 14:05:00 -0400

The recent spike in oil and gas prices has been attracting concern and accusations from all over the world. Yesterday Senator Clinton announced a crazy plan to sue OPEC producers for failing to produce more oil. This is a wild idea born of desperation in an election year. OPEC has repeatedly said that they do not need to produce more oil as no one is actually in need of more oil. Demand for consumption is not the issue here, other forces are at work.

Yesterday, the US Senate Committee on Homeland Security & Governmental Affairs held a hearing on "Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?" The Senate committee heard from those defending the role of speculators in oil and commodities markets as well as those who argue that excessive speculation is the root of global price surges.

Today BusinessWeek reports on yesterday's senate hearing in "Are pension funds fuelling high oil demand?" Clearly recent price spikes are not just from demand and not just from speculators. Clearly both have played a key role in an uptrend which is becoming increasingly precarious for all of us. But recently "demand" in energy and commodity markets have come to include players who had for many years stayed almost completely out of the equation. This new type of demand is from a new category of speculators: institutional investors like corporate and government pension funds, university endowments, and sovereign wealth funds. Infact Index speculators are a primary cause of recent price spikes in commodities.

"Speculative activity in commodity markets has grown dramatically over the last several years. In the past decade, the share of long interests -- positions that benefit when prices rise -- held by financial speculators has grown from one-quarter to two-thirds of the commodity market. In only five years, from 2003 to 2008, investment in index funds tied to commodities has grown twentyfold, from $13 billion to $260 billion."

Data shows that over the last five years, China's demand for oil has increased by 920 million barrels, while over the same period, index speculators' demand has increased by 848 million barrels. So China's growth in oil demand has only slightly outpaced the demand by this new group of investors and speculators.

Moody's now blames "a bug in their computer model"

daniellepark — Wed, 21 May 2008 09:30:00 -0400

I have long said that I am not impressed with efficient market theories about the genius and rationality of capital markets in asset pricing. Markets can often be just plain dumb, driven by irrational and erroneous assumptions of emotional participants.

Here is the latest example. Today the Financial Times reports Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models!! See Moody’s error gave top ratings to debt products and watch this short news clip for Monty-Python-esque impact.

Although the error was apparently discovered by some Moody's insiders in 2007, the products in question remained triple A until January this year when, amid general market declines, they were downgraded several notches. The products were designed for institutional investors. In the recent credit market turmoil, those who still hold the products will have suffered some paper losses while others who have bailed out have lost up to 60 per cent of their investment.

This is a common skit that we have seen many times in the financial world. The asset holders lose big chunks of their capital. They turn to the asset advisors and say you gave us bad advice. The asset advisors turn to the product creators and raters and say you designed bad products. The product creators and rating agencies say it’s not our fault the computer screwed up. Conveniently, no one is there to accept the blame when the music stops, though many made enormous fees passing the potato ‘round and ‘round while the music played.

Oh yes, and there is nothing risky about the current price of oil either...the computer models all agree that demand is accurately setting the price.

Stepping away from risk can be tough--but key to survival

daniellepark — Tue, 20 May 2008 11:44:00 -0400

Brian Milner had an interesting article on the front of the ROB Saturday, "Warning to equity investors: 'Watch your tail."

Noting the stock market's recent shift back to bullish sentiment over the past couple of months, Milner interviewed famed value investor Jeremy Grantham of GMO of Boston. Grantham has made a name for himself over the years by correctly calling over-zealous markets and taking a defensive stance to protect assets under management from bear market declines. Grantham has explained that he learned the need for a defensive, tactical approach early in his career when full of confidence and efficient market theory, and fresh out of Harvard Business School in 1968, Grantham played the Go-Go market at its peak and lost all his money by 1970.

Harsh lessons in investing are very valuable when they are taken to heart and they are particularly valuable when learned early on in one's career while there is still time to change one's ways. Grantham did. By the late 90's GMO had some 40 billion in assets under management, when they noted that equity valuations were beyond all reasonable prospects for lasting reward. Grantham and company moved a large weight of their equities to cash. Within months they were seeing large numbers of redemptions as impatient investors fled their fund in pursuit of the hottest high tech flyers. Grantham stood his ground even as risk-obsessed clients fled and assets under management shrank by half. And in the end of course, Grantham and company were right. In the end the crash of 2000-2002 proved Grantham was right, and he and the clients who had stuck with him were protected and ideally positioned then to step in and buy after others had been devastated. Investors ultimately recognized GMO for its strength and wisdom. Today the firm manages assets of more than $145 billion.

I noted over the past couple of years that Grantham had been writing and speaking again about building asset bubbles all around the world. I had not heard him interviewed in the past many months now until Milner's article Saturday. His comments on recent market strength are candid as always: