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Here’s That Report From Jeremy Grantham That Everyone Is Talking About Today

“The Night Of The Living Fed.”

That’s the title of a note from Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co., that everyone is talking about today.

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Grantham blasts the Federal Reserve’s easy money policy, arguing that it has harmed the U.S. economy. Further easing will only make things worse, he says. He compares Fed policy makers to creatures from a zombie attack movie.

If you've got some spare time today, go ahead and read the entire report. (Download it here from the GMO website.) But be warned: it runs to 16 single-spaced, double-columned pages. (Click here for CNBC.com's summary of the report.)

Both stocks and bonds are overpriced, Grantham argues.

We use the long-term returns for stocks to decide what their fair value is. They are currently overpriced. Bonds are even less attractive. Yet, remember that in a strongly mean-reverting world, you need to be careful about enthusiastically buying the less ugly of two overpriced investments. Cash has an option value. On the chance that stocks or bonds or, better yet, both, decline, the investor will need resources from which to buy.

Grantham is also skeptical of gold, which he thinks is not as good of an anti-inflation play as “forestry, agriculture, common stocks, and even real estate.”

He gives six very specific recommendations:

1) Emphasize U.S. quality companies, which are still cheap in an overpriced world.

2) Moderately overweight emerging market equities.

3) Moderately underweight the balance of global equities.

4) Heavily underweight lower quality U.S. companies

5) Carry extra cash reserves for a volatile market with insecure fundamentals.

6) For the very long term (20 years) overweight resources, particularly if they have a sharp decline. (This is my personal view rather than that of GMO, which on this topic is agnostic.)

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