What a difference a century makes. As the 19th century segued into the 20th, Carl Sandburg (1878-1967) wandered the country as a hobo. His personal experience of the gap between the rich and poor instilled in him a distrust of capitalism. After a stint in the Spanish-American war, Sandburg worked as a fireman by day and wrote poetry by night as a member of the Poor Writers' Club. Later, as a man with a family to support, he penned labor columns for the Chicago Daily News, honing his now legendary writing skills as well as his socialist views. In 1914 he published the famous "Chicago Poems" which celebrated the "course and strong and cunning" workforce of this city, which was:

Hog butcher for the world,

Tool maker, Stacker of wheat,

Player with railroads and the

nation's freight handler;

Stormy, husky, brawling,

City of the big shoulders.

Sandburg would scarcely recognize the sophisticated Chicago that hosted Undiscovered Managers' fifth annual Wealth Management Symposium in June. A long walk north of the Loop, the Gleacher Center of the University of Chicago School of Business nestles comfortably among gleaming office towers and posh hotels in a manicured section of this modern city. Several generations removed from the stockyards and steam engines of Sandburg's burly industrial city, golf-shirted, middle-aged portfolio managers filed past portraits of the university's Nobel Prize winners to attend lectures on the state of the capital markets.

Warnings Abound

The first three invited speakers offered, each in his own way, a sober view of the prospects for returns on capital over nearby years. Jeremy Grantham, chairman and chief investment strategist of Grantham, Mayo and Van Otterloo, presented reams of data supportive of his conviction that markets are not "basically efficient over time" and that one can profit from understanding that we live in a "mean-reverting" world.

Grantham says that professionals are too optimistic in expecting equity returns going forward to be 6% plus inflation. The spring rally left stocks 32% overvalued at 24 times 10-year real earnings; so he expects a nominal equity return of slightly less than 0% over perhaps seven years! The 20% rise in stock prices this spring is, he says, just a whopper of a bear market rally, in part reflecting the re-election dance of a popular President.

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