GMO 2Q 2017 Investor Letter

GMO published its second quarter 2017 investor letter. Jeremy Grantham writes: "Why Are Stock Market Prices So High?"

Some of his key points:

Contrary to theory, the market P/E level does not primarily reflect future prospects. It reflects current conditions...

High profit margins and stable, low inflation dominate this feel-good list...

Thus today’s high priced market is the completely usual response from investors...

...Any shift back to a lower P/E regime must therefore be accompanied by a major sustained fall in margins or a sustained rise in inflation (or both)

I do believe these comfort variables will move to be less favorable. But probably not quickly.