These are strange and difficult times for investors. U.S. stocks are up, but only a handful of companies are driving the indices while a lot of issues are hitting new lows. Storminess in China and Greece, and weakness in oil, gold, and commodities are creating anxiety. And while earnings reports haven’t been disastrous, downward guidance has led to selected steep single-day drop offs.
So now consider two recent big-picture looks at the world. One is the latest investment letter from Jeremy Grantham of money manager GMO. The other is investment strategist Byron Wien’s interview with, “the smartest man in Europe,” an experienced finance person in his 80s who has made prescient calls in the past.
Both Grantham and Wien share the sense that many assets are fully valued, that it will be harder for investors to find profitable opportunities and that long-term economic growth will be slow in much of the globe.
Grantham’s most interesting points center on the many reasons he sees economic growth slowing in the developed world. In addition to aging societies and slowing population growth, he worries about energy and food resources. He has long been a careful researcher of resources and passionate about the need to address climate change. He notes that the “low-hanging fruit” in big innovation has been picked, or as he puts it, “Facebook is not the new steam engine.” He also worries about income inequality. As long as the middle-class continues to make little wage progress, it should be no surprise that growth rates are low and debt levels high. Corporate profit margins, which have been unusually high, will not stay high forever if wage earners can’t make enough money to fuel spending.
The smartest man in Europe also sees slower growth in the future, largely because of too much debt, but he is more focused on geopolitical risk. He is pessimistic about ISIS, Syria, Libya, Iraq, Afghanistan, Iran, and Ukraine. Nevertheless he thinks the U.S. market, which is somewhat expensive, can hold its own because so much money in the world wants to be invested in the U.S. And he believes that innovation, especially in technology and biotechnology, will generate profitable opportunities and be one way investors could actually make good money.
Grantham is also (somewhat) optimistic when it comes to technology. He concludes his letter by saying, “I do obsess also about the remarkable acceleration in helpful technologies – mainly in alternative energy but also in agriculture – that may just save our bacon.” That’s a good reminder that, despite ongoing anxiety and difficulty, we often do in fact work our way out of seemingly insurmountable difficulty.
