Stock market skeptic Jeremy Grantham is known for calling out bubbles and predicting their burst, so everyone listens when he says markets are now in a worse bubble than the ones that preceded the Great Depression of 1929 and the Dot-Com bubble of 2000.
The chairman of the famed Boston-based investment management firm Grantham, Mayo, Van Otterloo & Co. (GMO), Grantham predicted the bull market peak of 2008 and the bear market low of 2009. Now he said stocks worldwide are overvalued by every metric and U.S. stock valuations have reached a concerning level.
“Bubbles are unbelievably easy to see; it’s knowing when the bust will come that is trickier. You see it when the markets are on the front pages instead of the financial pages, when the news is full of stories of people getting cheated, when new coins are being created every month,” Grantham told Reuters in an interview.
“The scale of these things is so much bigger than in 1929 or in 2000,” Grantham said. “Looking at most measures, the market is more expensive than in 2000, which was more expensive than anything that preceded it.”
In January, Grantham predicted that the stock bubble would burst as soon as spring or early summer with the broad rollout of the coronavirus vaccine.
In an investor letter titled “Waiting For the Last Dance“, he said the current bubble “could well be the most important event of your investing lives.”
There has “never been a great bull market that ended in this kind of bubble that did not decline by at least 50 percent,” Grantham told CNBC’s “Squawk Box Asia.
The letter got “a lot of pushback” from investors who saw Grantham’s bearish outlook as too gloomy. GMO defended this view from those on social media who were frustrated by the firm’s negative outlook.
The firm said it foresees negative returns on an inflation-adjusted basis over the next seven years for 10 of the 11 asset classes it monitors. It expects a negative return of 8 percent in U.S. large-cap stocks and 8.5 percent in U.S. small-cap stocks.
Image credit: Petrovich9 / istock, https://www.istockphoto.com/portfolio/Petrovich9?mediatype=photography
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?