“We really can’t forecast all that well, and yet we pretend that we can, but we really can’t.” – Alan Greenspan

Seven years ago, one of the largest and most respected investment managers, GMO, presented their widely-followed 7-year asset class return forecasts.

A summary of the commentary accompanying these forecasts:

“The consumer is as badly leveraged as ever, which is to say the worst in history.”

“I thought last April that the market (S&P 500) would scoot up to 1000 to 1100 on a typical relief rally. Now it seems likely to go through 1200 and possibly higher. The market, however is worth only 850 or so; thus, any advance from here will make it once again seriously overpriced, although the high quality component is still relatively cheap.”

“EAFE equities seem a little overpriced, emerging markets more so, and fixed income seems badly overpriced, especially cash, which is awful.”

“The real trap here, and a very old one is to be seduced into buying equities because cash is so painful. Equity markets almost always peak when rates are low, so moving in desperation away from low rates into substantially overpriced equities always ends badly.”

Seven years later, what actually happened?

Stocks:

Bonds: