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“Prepare For An Epic Finale” – Jeremy Grantham Warns Stock Market ‘Super Bubble’ Has Yet To Burst
“Prepare For An Epic Finale” – Jeremy Grantham Warns Stock Market ‘Super Bubble’ Has Yet To Burst
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…
Executive Summary
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.
…click on the above link to read the rest of the article…
Most People Have No Idea How Much Stocks are Likely to Crash
Most People Have No Idea How Much Stocks are Likely to Crash
S&P 500 chart courtesy of StockCharts.Com, annotations by Mish with thanks to Jeremy Grantham.
Fourth Super Bubble
For almost a half-century, value-investing icon Jeremy Grantham has been calling market bubbles. Now, he says U.S. stocks are in a “super bubble,” only the fourth in history, and poised to collapse.
Please do yourself a big favor and play the above interview in entirety.
It’s not a fluff interview. Bloomberg’s Erik Schatzker grills Jeremy Grantham right from the get go about Grantham’s view a year ago.
Q&A Snips
Schatzker: At the risk of putting words in your mouth, you are as certain [now] as you were then, if not more?
Grantham: I would say clearly more. I did freely admit, not in our conversation, but elsewhere, that I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000 or as I had been in Japan or as I had been in the housing bubble of 2007. I used to think in terms of near certainties. This time I felt highly likely bit perhaps not nearly certain. Today I feel it is just about nearly certain.
Grantham discusses “crazy behavior” , noting that even in 1929 you had some magnificent rallies.
Schatzker: If you are right and stocks are in a multi-sigma deviation from the statistical trend, tell me what happens. The S&P 500 peaked at almost 4800 points. What is the bottom?
Grantham: The trend line, being slightly generous, is 2500. And most of the great bubbles, the super bubbles go below trend and stay there for quite a while…
…click on the above link to read the rest of the article…
Lance Roberts: GMO’s Jeremy Grantham Is Correct, There’s An ‘Epic Bubble In Stocks’
Lance Roberts: GMO’s Jeremy Grantham Is Correct, There’s An ‘Epic Bubble In Stocks’
Following GMO’s co-founder Jeremy Grantham’s renewed warning about extreme overvaluations, RIA Advisors Chief Investment Strategist Lance Roberts chimed in on the conversation Thursday morning.
In “Three Minutes on Markets & Money,” Roberts agress with Grantham, saying, “the stock market is in a bubble.”
To refresh readers on Grantham’s Tuesday note titled “Waiting for the Last Dance,” Grantham wrote, “today, the P/E ratio of the market is in the top few percent of the historical range, and the economy is in the worst few percent. This is completely without precedent and may even be a better measure of speculative intensity than any SPAC.”
He wrote while he doesn’t know when the bubble will burst, the bust cycle is inevitable, and not even the Federal Reserve can prevent it.
“Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives,” Grantham said.
So back to Roberts, he says bubbles are a function of the market and repeat throughout time. Clearly, that is true in the figure below, showing bubbles over the past four decades.
Today is “clearly a bubble,” he said, adding that S&P500 valuations are overly stretched.
He said investors’ psychology is euphoric as they take on more equity exposure than ever before, adding that most speculative risks are being transacted in the options market.
In a series of charts, Roberts shows extreme optimism and/or high valuations that are not sustainable.
Market Cap Of Stocks / GDP Ratio
S&P500 Price To Sales Ratio
…click on the above link to read the rest of the article…
Waiting For the Last Dance
The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.
These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in.
But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.
“The one reality that you can never change is that a higher-priced asset will produce a lower return than a lower-priced asset. You can’t have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both – and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.”1
…click on the above link to read the rest of the article…
