Jeremy Grantham’s 3Q Letter is another good read (free registration required). Here is a quote:

The May through June shock to the low risk premium caused a rapid response, not surprisingly, from the newly gigantic hedge funds. They moved quickly to reduce their leverage and the carry trade in sensitive areas. …I would hope that most of the fastest guns have shot by now, but since we have never lived in a $1.2 trillion hedge fund world before, we have to guess. A great majority of all hedge fund money has never known a world that was not dominated by Greenspan moral hazard ? heads you win and tails I?ll help you out ? and this fact has two consequences: first, they should be very slow to entirely give up speculative confidence; and second, there is an awful lot of speculative confidence to finally give up!

In addition to the recent market action, Grantham discusses the trends in risk premium, the correlation between EAFE and domestic equities, personal savings rates, reversion to the mean, An Inconenient Truth, efficient market hypothesis tyrany, and a whole lotta other stuff.

The 3 page section after the quarterly letter is titled, “Everything I Know About the Market in 15 Minutes” and does a good job of describing Grantham’s style and beliefs.

For those who don’t know, Jeremy Grantham is the front man for GMO, one of the big money managers with over US$122 billion under management. He’s not afraid to make unpopular arguments and certainly isn’t afraid to call out things like “career risk” that do affect returns.