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Mutual Funds
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Score one for the bears
Morningstar conference kicks off with talk of stock bubbles and scary market valuations.
June 25, 2002: 2:41 PM EDT
By Martine Costello, CNN/Money Staff Writer

CHICAGO (CNN/Money) - It wasn't exactly a knockout on the order of Lewis and Tyson. But the bull-bear debate that kicked off the Morningstar Investment Conference Tuesday morning got pretty bloody -- and it was the bear who came out ahead.

The standing-room crowd of more than 1,000 money managers at the Hyatt Regency seemed captivated when notoriously bearish Jeremy Grantham warned that the market could be in the scariest, biggest stock bubble in history -- even after more than two years of market losses.

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Grantham is co-founder of Grantham Mayo Van Otterloo & Co., a Boston-based global investment firm with about $20 billion in assets under management. He argued that the S&P 500, with a P/E around 25, is way overvalued. A more reasonable level would be 17.5, he said, a 30 percent decline.

Stocks traded at 21 times earnings before the market crashed in the 1930s and the 1960s. "And 25 is a trough? Give me a break," Grantham said. "It will take years before this enormous euphoria washes through our system."

Bullish tech manager Jim Oelschlager was left playing defense when he took the microphone. Oelschlager is founder of Oak Associates, a small family of tech-related funds including the $2.4 billion White Oak Growth. He argued that the market will rally despite the bleak outlook for tech and telecoms.

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"A lot of car companies went belly up [at the dawn of the auto age] and it didn't mean the end of the auto industry," Oelschlager said. "Even though a lot of tech and telecom companies went belly up, it doesn't mean people won't be using technology and the Internet."

Oelschlager said that higher productivity and corporate restructuring will give earnings a boost. Inflation will remain low, which will keep a lid on interest rates. As a result, valuations will remain high.

Grantham countered that Japan had low inflation before its market collapsed in the 1980s. "It didn't keep that bubble from bursting...all bubbles always break."

Oelschlager then argued the U.S. market would rally as it did after the last slowdown in the early 1990s. He said he was upbeat on health stocks, given that people are living longer and have more medical needs.

Grantham deadpanned that he's a bull about health too.

"But that doesn't have anything to do with the stock market," Grantham said. "What we're dealing with is one of the greatest bubbles in history, if not the greatest."  Top of page






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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.