{"id":33915,"date":"2012-12-02T18:36:49","date_gmt":"2012-12-02T23:36:49","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/12\/jeremy-grantham-is-bailing-out-of-bonds-should-you\/"},"modified":"2012-12-02T18:36:49","modified_gmt":"2012-12-02T23:36:49","slug":"jeremy-grantham-is-bailing-out-of-bonds-should-you","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/12\/02\/jeremy-grantham-is-bailing-out-of-bonds-should-you\/","title":{"rendered":"Jeremy Grantham is Bailing Out of Bonds. Should You?"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

He is too much of a gentleman to do it, but if there was ever a money manager who could say \u201cI told you so\u201d it would be Jeremy Grantham of GMO.\u00a0 Grantham and his team warned of the dangers of the 1990s tech bubble years before it burst, and warned of the consequences of the 2000s housing bubble long before anyone else took it seriously.<\/p>\n

But lest you think Grantham is a congenital permabear, he was also buying with both fists as the market was finding its panic bottom in 2008 and early 2009.<\/p>\n

He doesn\u2019t always get it right, and, frankly, some of his investment commentary\u2014such as his warnings of a catastrophic global food shortage\u2014inches into kooky territory. \u00a0But as far as large, high-profile money managers go, his track record over the past decade is hard to beat.<\/p>\n

So what are Grantham & Co doing these days?<\/p>\n

To start, they are dumping bonds.<\/p>\n

In a recent interview<\/a> with the Financial Times, Ben Inker, Grantham\u2019s co-head of asset allocation, said that GMO has \u201cgiven up\u201d on the bond market, or at least on long-maturity government bonds.\u00a0 Rather than hold Treasuries\u2014which yield practically nothing at all maturities on the yield curve\u2014GMO is preferring to simply sit mostly in cash for the non-equity portion of its portfolio.<\/p>\n

Where else is GMO investing?\u00a0 For the past several years, Grantham & Co have favored high-quality American and European multinationals, and this is the same approach Sizemore Capital has taken.\u00a0 These blue chips would seem to offer the best risk \/ reward tradeoff at today\u2019s prices, particular if they pay a decent dividend.\u00a0 Emerging markets have been a favorite fishing pond as well, though Inker considers them \u201cscary\u201d due to the risk of a Chinese hard landing.<\/p>\n

Interestingly, Inker is modestly bullish on Japan.\u00a0 I consider Japan to be the potential short opportunity of a lifetime<\/a>, so one of us is going to be wrong.\u00a0 It\u2019s generally bad policy to bet against GMO, but I am betting that this is one time with Grantham\u2019s team is dead wrong.<\/p>\n

Where does all of this leave investors?<\/p>\n

If you own bonds in a mutual fund or ETF, I\u2019d recommend you follow GMO\u2019s lead and dump them.\u00a0 Now.\u00a0 At current yields, the pitiful return is not worth the risk of capital loss.\u00a0 There is no upside from here.\u00a0 At all.\u00a0\u00a0 As in \u201cnada.\u201d<\/p>\n

If you own individual bonds that you have held for a long time, the story is a little more complicated.\u00a0 Unlike a mutual fund, which has no maturity and is presumed to last forever, individual bonds do mature.\u00a0 Assuming you didn\u2019t buy your bonds at a premium, this means that you are guaranteed to at least get your original investment back.<\/p>\n

If you are collecting a decent coupon from a bond you\u2019ve held for a while, then there is little harm in holding it to maturity.\u00a0 But if you\u2019re the trading sort, then I\u2019d follow Grantham and Inker and dump them.\u00a0 There is better money to be made elsewhere.<\/p>\n

This article first appeared on MarketWatch<\/a>. \u00a0<\/em><\/p>\n

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The post Jeremy Grantham is Bailing Out of Bonds. Should You?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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