Friday, January 23, 2009

GMO - Jeremy Grantham's 4Q 2008 Letter (Part 1)

With economies and financial markets, it seems that if you stare hard enough and long enough at the fog of battle, you occasionally get a glimpse of what may be going on when a favorable wind blows. This, for me, is decidedly not one of those occasions. It is obvious to all of us that these are momentous days in which government actions may well have make-or-break impact, but my confidence in government and leadership is at a low ebb. (Although I must admit my confidence has increased enormously in recent weeks in all areas outside of finance. Even in finance it has increased a little.) Economic advice for President Obama covers the waterfront, and even the near-consensus case for great stimulus is lacking in historical certainties or intellectual rigor. Everyone seems to be guessing at strategies and outcomes, knowing clearly that the best strategy would have been to have avoided getting into this pickle. The current disaster would have been easy to avoid by making a move against asset bubbles early in their lifecycle. It will, in contrast, be devilishly hard to get out of. But, we are deep in the pickle jar, and it seems likely that, in terms of economic pain, 2009 will be the worst year in the lives of the majority of Americans, Brits, and others. So break a leg, everyone!

It would be helpful at a time like this to have a Quarterly Letter that sounded convinced of something … anything. So I apologize for overtly tickling around the edges. I do not apologize, though, for pointing you to the best thing I have read in The New York Times in a very long time: the article by Lewis and Einhorn does a great job of summarizing where we are and how we got here, as well as offering some helpful advice for the future. My contribution is to address a few peripheral topics that have accumulated over recent quarters as more important topics have dominated.


Related previous post: NY Times Op-Ed from Michael Lewis and David Einhorn