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Global Economics

What Jeremy Grantham Didn't Say


Photograph by Matthew Lloyd/Getty Images


We do think the market is going to go higher because the Fed hasn’t ended its game, and it won’t stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market’s mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.
—Jeremy Grantham in Jeremy Grantham: The Fed Is Killing the Recovery by Stephen Gandel, Fortune, March 24, 2014
The Trend Is Your Friend
—Martin Zweig, Winning on Wall Street, Ch. 5 (Grand Central Publishing, 1986)

“Twenty five percent from where we are now” means greed overcomes fear.

It is the new journalism. Stephen Gandel at Fortune does a smart interview with investor Jeremy Grantham, Rob Wile picks it up at Business Insider, Sam Ro re-purposes Wile, and then I see and steal from Ro. It’s a great country.

Grantham is a noted gloomster. Wait! Grantham says: Stay long the market. Own stocks.

A few quick ideas:

The world is divided into two known worlds. Those who have a passing understanding of “standard deviation” and those who do not.

The critical distinction is that it is not a big deal to acquire a modest knowledge of variance, dispersion, sigma, nor Chebyshev’s Inequality. What is critical is that if you have no clue, you’re toast. Statistical toast. Career toast.

Get a working understanding of trend. Read the Zweig classic.

Try to understand the core concept that every series has a different “width” of deviation, a different dispersion. Colgate (CL) shares trend differently than Tesla (TSLA) shares trend differently from iron ore or the Japanese yen.

Nerd Alert: On a given series, where do you start and end your trend/regression that shows one, two, and three standard deviations?

I use the two longer of three Kleinman Moving Averages and begin and end the study where the two averages cross. Lost? Statistical/technical types are in awe of the misinformation floating around on investing upon the Euclidian space. It takes much more brainpower than: “Here’s a chart of Apple (AAPL).”

I digress.

Jeremy Grantham is very good. He says the boat has left the dock and you should stay on it until excess abounds. Think a Dow Jones industrial average of 20,000.

The “trend” is in place and it is a wealth-creating friend. Grantham has an abrupt set of worries after the Fed takes away the punch bowl. He generates a “target” that is not a target but rather a signpost to give courage to be in the markets until …

In the meantime, repress your inner greed, your outer fears. It’s not what Jeremy Grantham said, it is rather what he did not say.


Keene hosts Bloomberg Surveillance 7-10 a.m. ET on 1130 AM in the New York metro area and nationally on SiriusXM 113.

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