Juggling Dynamite

Good interview with GMO’s Jeremy Granthan looking at the investment implications of declining population growth, the end of the debt super-cycle, lower global GDP, and the historical prospects of the first year of the US Presidential Cycle which we entered on October 1. See: Charlie Rose talks with Jeremy Grantham:

“As an investor, what do you do?

“I’ve hero-worshipped the presidential cycle. Going back to 1932, if you take the first and second year together, they’ve had no real return in the market. All of the return has been compressed into a gigantic Year Three and a respectable Year Four. For us, the cycle years start on October 1st. So now we’re in the dreaded first year. And we have Republicans threatening to add fiscal constraints into a very fragile economy. We have the European situation. We have China stumbling in an incredible slow-motion style. I think it’s a really good year to keep your head down….

I am going to be careful, particularly for the first half of next year. Great brands of blue chips are not so bad in the U.S. Emerging countries are about fair price. Beaten-down European stocks, particularly the so-called value stocks, are probably a little cheap, although risky. And resource stocks, once they reflect the weak economy—and we’ll get another whack-down—will be a wonderful long-term purchase. Farmland and forests, which should be the backbone of any long-term, serious portfolio. … It will also be a good time to buy in. “

The best case scenario last night was a definitive result. And we got that. The side show of the election has come to a close with the existing administration and power balance continuing. At least there will be no further time lost recounting ballots for months, or waiting for a magical change in January. Now it is immediately back to the hard work of some very sober numbers. Everyone will have to give to get–all sides. And although I was profoundly disappointed with Obama’s status quo maintenance of the “financial complex” in his first term, I am prepared to harbor some small hope that in a second and final term–one without chance of re-election–he may finally go to the wall on some of the change he promised 4 years ago. Perhaps the Republicans will also find some humility and much needed vision growth in this second defeat. One can hope. And given the alternatives, I say to hell with darkness. Onward.

Once a great deliberative body, the Senate is now known for deadlock, dysfunction and political games. Will Tuesday’s election help? Steve Kroft reports. Here is a direct link.