From a GMO white paper by James Montier: It appears that asset markets are priced as if secular stagnation [a condition of negligible or no economic growth that has to play itself out] were a certainty. Certainty is a particularly dangerous assumption when it comes to investing. As Voltaire stated, "doubt is not a pleasant condition, but certainty is absurd". To believe that asset market pricing makes sense, you need to hold any number of "impossible" (at best improbable, and at worst truly impossible) things to be true. This is a different sort of experience from the bubble manias that are parsimoniously captured by Jeremy Grantham’s definition of bubbles – "excellent fundamentals, irrationally extrapolated". This isn’t a mania in that sense. We aren’t seeing the insane behaviour that we saw during episodes like the Japanese land and equity bubble of the late 1980s, or the TMT bubble of the late 90s, at least not at the micro level. However, investors shouldn’t forget that the S&P ...
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