Monday, 4 May 2015

GMO and Hussman market commentaries

GMO thinks that bonds are no longer worth holding for most investors but stocks may still have some upside.

In the latest GMO quarterly letter, Ben Inker wrote: “At current yields, the utility of long-term government bonds in most investment portfolios is questionable at best.”

However, Jeremy Grantham in the same letter wrote that the US stock market is not yet in a bubble but will be in one eventually. “It seems logical to assume that...the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble.”

In contrast, John Hussman thinks that the stock market is already extremely overvalued. In his latest commentary, he wrote: “Based on the most reliable valuation measures we identify, stock market valuations are already 2.3 sigmas above reliable historical norms.”

His baseline expectation for 10-year total returns is 1.5 percent. He added: “We should not be at all surprised if the actual total return ends up being negative.”

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