GMO’s Inker Sees Losses for Stocks in Coming Seven Years

November 20, 2013 Leave a comment

GMO’s Inker Sees Losses for Stocks in Coming Seven Years

U.S. stocks will decline over the next seven years after almost tripling from their 2009 lows because they are overvalued, said Ben Inker, head of global asset allocation at investment firm Grantham Mayo Van Otterloo & Co. The decline will happen either through a “quick bear market or a longer period of more of less flat returns,” Inker said in a letter released yesterday. Stock prices may still rise 20 percent to 30 percent over the next year or two before collapsing, Jeremy Grantham, the Boston-based money manager’s chief investment strategist, wrote in the same letter.“We will have the third in the series of serious market busts since 1999,” wrote Grantham, who correctly predicted in 2000 that stocks would lose ground in the next decade. “And we the people, of course, will get what we deserve.”

Stocks have been pushed to record highs in three rounds of asset purchases by the Federal Reserve, which have forced investors into riskier assets such as equities. The Dow Jones Industrial Average exceeded 16,000 for the first time yesterday and gained 22 percent this year, and the S&P 500 Index climbed 26 percent.

BlackRock Inc. (BLK) Chief Executive Laurence D. Fink said this month that stocks may decline as much as 15 percent because of political risks in China, Japan, France and the U.S. New York-based BlackRock is the world’s largest money manager with $4.1 trillion in assets.

Grantham’s Prediction

Grantham, 75, is best known for his prediction in 2000 that stocks would decline in the next decade. The benchmark index lost 1 percent a year in the 10 years ended Dec. 31, 2009, according to data compiled by Bloomberg.

Grantham yesterday said that prudent investors should already be reducing their equity bets and their risk level in general. “Be risky and you’ll probably make some more money, but you may be bushwhacked and, if you are, your excuses will look thin,” he said.

Inker said the fair value of the S&P 500 Index (SPX) is 1,100. The index closed yesterday at 1,791.53. He said the expected return on the index over the next seven years was a loss of 1.3 percent annually after adjusting for inflation. For the broader Wilshire 5000, he predicted an adjusted annualized loss of 2 percent.

“The U.S. stock market is trading at levels that do not seem capable of supporting the type of returns that investors have gotten used to receiving from equities,” Inker wrote.

Grantham Mayo Van Otterloo managed $112 billion as of Sept. 30, according to its website.

To contact the reporter on this story: Charles Stein in Boston at cstein4@blsoomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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