73 Thought Experiment) by Jeremy Grantham • Career Risk and Stalin’s Pension Fund: Investing in a World of Overpriced Assets (With a Single Reasonably-Priced Asset) by Jeremy Grantham • Bracing Yourself for a Possible Near-Term Melt-Up (A Very Personal View) by Jeremy Grantham Grantham’s colleagues, Matt Kadnar and James Montier rightly pointed out that given the outperformance and valuation levels of the US markets, foreign stock markets remained more attractive. • The S&P 500: Just Say No by Matt Kadnar and James Montier A long-time favorite piece at Gurufocus.com was updated after the end of the year to underscore relative future performance of emerging versus developed markets. • Global Stock Market Valuations and Expect- ed Future Returns One of the most memorable publications was a paper from the BIS summarizing the necessity of moving to an equity-based model! • BIS Working Papers No 656: Demographics will reverse three multi-decade global trends by Charles Goodhart and Manoj Pradhan, August 2017 Excerpt “Between the 1980s and the 2000s, the largest ever positive labor supply shock occurred, resulting from demographic trends and from the inclusion of China and eastern Europe into the World Trade Organization. This led to a shift in manufactur- ing to Asia, especially China; a stagnation in real wages; a collapse in the power of private sector trade unions; increasing inequality within countries, but less inequality between countries; deflationary pres- sures; and falling interest rates. This shock is now reversing. As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall. What is the biggest challenge to our thesis? The hardest prior trend to reverse will be that of low interest rates, which have resulted in a huge and persistent debt overhang, apart from some deleveraging in advanced economy banks. Future problems may now intensify as the demographic structure worsens, growth slows, and there is little stomach for major inflation. Are we in a trap where the debt overhang enforces continuing low interest rates, and those low interest rates encourage yet more debt finance? There is no silver bullet, but we recommend policy measures to switch from debt to equity finance. Still doing its best to defend the official reality, McKinsey Global Institute tried to minimize the dawning realization that corporations and their stocks are outperforming the GNP at frightening rates. • Looking behind the numbers for US stock indexes As always, McKinsey makes some excellent points. However, we continue to emphasize that rigging high profits and low cost of capital for large enterprises combined with force to ac- cess cheap natural resources was not a winning system when Stalin, Hitler, and Mussolini tried it, and there is no reason to believe it will work better this time around. In the long run, we think investors will be better off if companies and the general economy are aligned with each other and with GNP growth and a healthy environment. Nevertheless, 2017 was a year of “crashup” in the global equity markets. Early 2018 looks like a “melt up.” The question on investors mind is, “how long can this last?”