Jeremy Grantham authored a piece for Barron’s recently in which he argues that “the positive effects of low resource prices are underestimated,” maintains that we are not in a bubble and thus “a major market break [is] unlikely” to occur yet,  and suggests that the longer-term forecast is “rather depressing.” Looking back at 2015, Grantham highlights “the big positive” of Federal Reserve support and “the big negative” of “China slowing down,” as well as “the plunging price of oil,” and the decline in profit margins. Looking at 2016, he notes that “uncertainties are above average,” but suggests growth of “2.5% [is] quite attainable for this year.” Further, Grantham “admit[ed] to feeling nervous for this year’s equity outlook in the U.S.,” but said he “still believe[s] it is ‘likely’ that we will reach Election Day more or less intact” – with the caveats that his “definition of ‘likely’ [has been] beaten down . . . to something just over 50%” and “the wild card . . . is China.”

Longer term, Grantham says the current market “is not quite expensive enough to deserve the bubble title,” but “we should welcome a major market break” that is likely to come eventually because “the U.S. equities market . . . is very overpriced . . . and the outlook for fixed income is dismal.” Further, he contends that “the U.S. market will rally once again to become a fully-fledged bubble” because it is “the logical outcome of a Fed policy that stimulates and [overstimulates] some more until, finally, some strut in the complicated economic structure snaps.” He also emphasizes that oil-producers’ decision “to give up any and all attempts to control price” may prove “very destabilizing to economies, politics, and social cohesion,” especially in Saudi Arabia. Yet, Grantham asserts that resulting low resource prices “will very likely become an important economic tailwind for the next several quarters” that “gives an opportunity for the global economy to regroup and start to grow a bit faster again, at least for a while.”