Friday, April 27, 2007

Bubble World

Jeremy Grantham is a legendary value investor with a gold plated client list. According to this article in The, he believes the world is in a bubble:

Everything is in bubble territory, he says.

Everything. "From Indian antiquities to modern Chinese art," he wrote in a letter to clients this week following a six-week world tour, "from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it's bubble time!"

"Everyone, everywhere is reinforcing one another," he wrote. "Wherever you travel you will hear it confirmed that 'they don't make any more land,' and that 'with these growth rates and low interest rates, equity markets must keep rising,' and 'private equity will continue to drive the markets.' "

I don't know anything about Indian antiquities or modern Chinese art, but in many ways, I agree with Mr. Grantham. The world is awash in liquidity and many risk assets are trading at unreasonable valuations. I don't think that applies to US stocks, but emerging market bonds and emerging market stocks certainly fall in that category. I just don't think the bubble is ready to burst just yet.

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