Jonathan Burton of MarketWatch ^[1] recently conducted an excellent interview with Jeremy Grantham, chairman of GMO. In short, the 72-year-old veteran expects another decline in U.S. stocks and that prices could stay low for years while the U.S. economy muddles through at possibly 2% a year. He particularly fancies dividend-paying stocks in emerging markets, as well as natural resources and agriculture (including timber and fertilizer companies).

A few topical quotes are provided below, but I strongly recommend you read the full article.

“This is no market for young men. At least us old men remember what a real bear market is like, and the young men haven’t got a clue.”

“No one has been prepared to make tough decisions. Where have the Europeans been for 10 years? None of these things came out of the woodwork two weeks ago. No one attempted to blow the whistle and make tough decisions in a timely fashion.”

“We have these basically distinct problems joined only by a general fragility of the financial system. So you can’t know for sure that if China stumbled it wouldn’t set off something else, or if the U.S. goes into a double-dip [recession], it won’t set off a European bank failure.”

“If we adjust earnings to normal and apply an average P/E, you can finally build a decent portfolio today of global equities at a respectable long-term return. In stocks you will eventually do OK at these prices.”

“The real danger is … you can buy a whole portfolio of slightly cheap global stocks, and the risk you take is that you get sandbagged by some … major problems.”

“One day we will have more inflation and our bonds will bleed like a pig. The only reason for buying long bonds is short-term or as a desperate haven for terrorized investors. But the potential to make longer-term real money is naught.”

Source: MarketWatch ^[1], September 21, 2011.

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