Jeremy Grantham’s 2Q 2010 Newsletter

Jeremy Grantham

Jeremy Gratham came out with his Q2  2010 letter  today. Among the topics discussed are his worrying outlook on the economy, the latest financial reform bill, global warming, the stock market, and aging populations and pension costs which happens to be one of my favorite topics.

Below is a small excerpt from the beginning of the newsletter. The whole newsletter is embedded below in scribd for easy viewing.

The worrying news is that most European countries, led by Germany (not surprisingly in this case), are coming onmore like Hoover than Keynes.More surprisingly, Britain and half of the U.S. Congress are acting sympatheticallyto that trend, which is to emphasize government debt reduction over economic stimulus.Yet, after a relatively stronginitial recovery, the growth rates of most developed economies are already slowing, despite the immense previousstimulus. You don’t have to be a passionate follower of Keynes to realize that to rapidly reduce deficits at this point is at least to flirt with a severe economic decline.We can all agree that we had a  financial crisis, a drop in asset values,and an economic decline, all three of which were global (although centered in the developed countries), and all threeof which were the worst since the Great Depression.All three were destined to head a whole lot deeper into the pitwithout the greatest governmental help in history, also global.Yet despite this help, the economic recovery wasmerely adequate, unlike the stock market recovery, which was sensational and, as often happens, disproportionate tothe fundamental recovery.But in the last three months, more or less universally in the developed world, there hasbeen a disturbing slackening in the rate of economic recovery.(Perhaps Canada and Australia on their own look okay,propped up by raw materials and, so far, un-popped housing bubbles.)

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I am still committed to my idea of April 2009 that there would be a “last hurrah” of the market, supported psychologicallyby a substantial economic recovery but then, after a year or so, that this would be followed by a transition into a long,difficult period that I called the “seven lean years.”I had, though, supposed that the economic reflex recovery – howcould it not bounce with that flood of governmental help to everyone’s top line? – would last longer or at least not slowdown as fast as we have seen in the last few weeks.And with unexpectedly strong fiscal conservatism from Europeand perhaps from us, this slowdown looks downright frightening.I recognize that in this I agree with Krugman, but Ican live with that once in a while.However, where I am merely fearful, he is talking about another “Depression.”


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