GRANTHAM'S MARKET FORECAST: Stocks Meh, Bonds Horrible, Trees Good

GMO has released its latest 7-year asset class forecasts (based on prices on February 29th).

The forecasts are average annual returns over 7 years based on current prices relative to cyclically adjusted earnings, return on equity, and other measures. The expected returns are “real” (adjusted for inflation, which is presumed to be 2.5%). In the past, GMO’s forecasts have often been very accurate.

The bottom line:

  • US stocks will have crappy returns, especially small stocks, with one exception…
  • US “high-quality” stocks (high cash flow, low debt) will do OK (just below average)
  • International stocks will have fine returns (just below average)
  • Bonds and cash will have horrible returns across the board
  • Trees (timber) will have their usual impressive returns

Please click chart for larger:

Grantham Market Forecast March 2012

Photo: GMO

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