Bearish Grantham Admits `Major Error' Being Bullish on Metals

  • GMO Strategist says he should have bet against the bubble
  • Says stocks are expensive but not in a bubble territory

Jeremy Grantham, best known for spotting bubbles in equity markets, said he missed the one in metals.

Grantham, chief investment strategist at GMO in Boston, has warned since 2011 that the world was running out of natural resources and that the price of minerals would remain high. In a letter to shareholders Tuesday, Grantham admitted that he got it wrong.

“I could have and should have made good money playing against the bubble in minerals,” Grantham wrote in the first section of the letter which was titled "Part 1: Always Cry Over Spilt Milk.” His 2011 suggestion “of a positive intermediate-term outlook (10-year) for mining resources therefore seems to have been a major error,” he said.

Since reaching a five-year high in February 2011, the London Metal Exchange LMEX Metals Index has declined 49 percent. While Grantham said he recognized that lackluster economic growth in China could cut the demand for minerals, he concedes he didn’t foresee how abrupt that would be.

“I completely missed the possibility of such an extreme outcome,” he said. There is “unlikely to be a quick or dramatic recovery in demand for metals.”

In the same letter Grantham said stocks are expensive but not in bubble territory. It’s “close to impossible” that pension funds will be able to reach their investment goals of 5 percent to 7 percent a year, he said, adding that a portfolio of 60 percent stocks and 40 percent bonds “would be lucky to deliver 3 percent.”

Grantham, 77, is best known for his accurate prediction in 2000 that U.S. stocks would lose ground for the next decade. GMO managed $99 billion as of March 31.

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