U.S. blue chips and U.S. bonds will mostly be priced lower relative to fair value than the trendier newer asset classes.

Test: in the period after April 2007 that Grantham was describing (the late stage of the 2007 credit/risk boom, roughly mid-2007 to 2008), were U.S. blue chips (large high-quality U.S. stocks) and U.S. bonds priced lower relative to fair value (cheaper, with higher expected returns) than the trendier 'newer asset classes' (e.g. emerging market equities, private equity, commodities, hedge-fund-type and other risky alternative assets)? True: GMO's own valuation measures (e.g. its seven-year asset class forecasts) or comparable independent valuation evidence from that period show U.S. blue chips and U.S. bonds as relatively cheaper than most of those newer asset classes. Mostly true: this holds for most of those comparisons with a minor exception. Mixed: it holds for one of the two (blue chips or bonds) but not the other, or for about half of the newer asset classes. Mostly false: the gap was negligible or held only for a small minority of comparisons. False: the evidence shows U.S. blue chips and U.S. bonds were valued the same as or more richly relative to fair value than the newer asset classes.

Set before the research began.

1. E1 Opportunity lying in plain sight The Motley Fool Australia · 18 October 2011

   “As of the end of last month, GMO liked high-quality U.S. stocks and international stocks as well. It predicted 7.2% real annual returns for international large caps and emerging markets. U.S. high-quality stocks are forecast to produce returns in the neighborhood of 6.6%.”

2. E2 Opportunity lying in plain sight The Motley Fool Australia · 18 October 2011

   “The firm also forecast a negative 1% return for the S&P 500 during the period. It returned essentially nothing over that 10-year stretch.”

3. E3 Opportunity lying in plain sight The Motley Fool Australia · 18 October 2011

   “As of the end of last month, GMO liked high-quality U.S. stocks and international stocks as well. It predicted 7.2% real annual returns for international large caps and emerging markets. U.S. high-quality stocks are forecast to produce returns in the neighborhood of 6.6%.”

4. E4 Jeremy Grantham: Stocks Still Aren't Cheap Seeking Alpha · 12 October 2008

   “True, fair value on the S&P 500 is about 1,025 - vs. last week's close of about 900 - but bubbles tend to overcorrect by more than that (20%).”

5. E5 Jeremy Grantham: Stocks Still Aren't Cheap Seeking Alpha · 12 October 2008

   “One bet that he continues to like is to go long high-quality, blue-chip stocks - and short risky companies.”

6. E6 Jeremy Grantham: Stocks Still Aren't Cheap Seeking Alpha · 12 October 2008

   “He will at some point look to move slowly back into the cheapest pockets of emerging-market equities and small-cap international value - which are down 50% and 40% respectively since late last year.”

E5 (October 2008) reports that Grantham still favoured going long high-quality blue chips and short risky companies. E6 says emerging-market equities had fallen 50% since late 2007. Both point loosely toward blue chips being relatively favoured, but neither gives a comparative valuation of blue chips against the newer asset classes for mid-2007 to 2008. None of the evidence covers U.S. bonds. E1 and E3 describe GMO forecasts from 2011, which is outside the period being tested; E2 describes an earlier S&P 500 forecast over an unspecified ten-year stretch; and E4 gives only an S&P 500 fair-value estimate. That is not enough to settle the comparison the criteria require.