U.S. pension funds are crying in their soup now, but they can at least find some solace in the fact that, for the first time in 20 years, we’re looking at all global equities being modestly cheap,” said Mr. Grantham. Some are substantially cheap, which has left GMO looking to add to its holdings, he said. “Catching a falling knife is never without pain, (but) the prime directive is to buy cheap assets.”
There’s no need to rush, however. CFOs should phase back into equities “with all deliberate slowness, as opposed to all deliberate speed,” Mr. Grantham warned. Even though the S&P 500 is trading below GMO’s fair value estimate for that index of 975, markets typically overshoot on the downside by 20% or more, he noted. If the market panics, that bottom could be reached in days or weeks. If it’s a more orderly affair, it could take until 2010, as investors digest a likely stream of wretched economic news, he said.
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