Having infamously spotted and profited from bubbles in Japan in the late 1980s, tech stocks at the turn of the century and in US housing before the 2008 financial crisis, GMO’s co-founder Jeremy Grantham laid out in his latest note to investors why the “super bubble” that he previously warned about hasn’t popped yet (despite this year’s somewhat chaotic market behavior).
“You had a typical bear market rally the other day and people were saying, ‘Oh, it’s a new bull market,” Grantham said in an interview with Bloomberg.
“That is nonsense.”
Specifically, the 83-year-old investors says that the surge in US equities from mid-June to mid-August fits the pattern of bear market rallies common after an initial sharp decline — and before the economy truly begins to deteriorate; and sees more trouble ahead because of a “dangerous mix” of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Fed.
“My bet is that we’re going to have a fairly tough time of it economically and financially before this is washed through the system,’’ Grantham said.
“What I don’t know is: Does that get out of hand like it did in the ‘30s, is it pretty well contained as it was in 2000 or is it somewhere in the middle?”
In his note today, Grantham warns that we are entering the superbubble’s final act…
Only a few market events in an investor’s career really matter, and among the most important of all are superbubbles. These superbubbles are events unlike any others: while there are only a few in history for investors to study, they have clear features in common.
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