Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Bubbles, bubbles everywhere: Jeremy Grantham on the bust ahead

EconomyJul 20, 2021 02:55AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Jeremy Grantham, Co-founder and Chief Investment Strategist of GMO, speaks on financial innovation at Pace University in New York October 16, 2009. REUTERS/Nicholas Roberts/File Photo

By Chris Taylor

NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate bidding wars, studying the history of financial markets might seem a little dry and old-fashioned.

Except to Jeremy Grantham.

The chairman of the board of famed asset managers GMO is a certified bubble-ologist, fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in his eighties - he has also lived through (and called) numerous modern booms and busts, including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in 2009.

In case you did not know where this is headed: He says we are in a bubble right now.

In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an inflating bubble that "could well be the most important event of your investing lives."

Six months later, the stock market is starting to show some cracks. Grantham spoke with Reuters about this moment of market history.

Q: When your letter of warning came out, what was the response like?

A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They said my ears were too big, and that I needed to be locked up in an old-folks home.

Q: So if we were already in a bubble then, where do things stand right now?

A: 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. The scale of these things is so much bigger than in 1929 or in 2000.

Q: What is your take on equity valuations now?

A: Looking at most measures, the market is more expensive than in 2000, which was more expensive than anything that preceded it.

My favorite metric is price-to-sales: What you find is that even the cheapest parts of the market are way more expensive than in 2000.

Q: What might bring an end to this bubble?

A: Markets peak when you are as happy as you can get, and a near-perfect economy is extrapolated into the indefinite future. But around the corner are lurking serious issues like interest rates, inflation, labor and commodity prices. All of those are beginning to look less optimistic than they did just a week or two ago.

Q: How long until a bust?

A: A bust might take a few more months, and, in fact, I hope it does, because it will give us the opportunity to warn more people. The probabilities are that this will go into the fall: The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a few months longer than I would have initially guessed.

What pricks the bubble could be a virus problem, it could be an inflation problem, or it could be the most important category of all, which is everything else that is unexpected. One of 20 different things that you haven't even thought of will come out of the woodwork, and you had no idea it was even there.

Q: What might a bust look like?

A: There will be an enormous negative wealth effect, broader than it has ever been, compared to any other previous bubble breaking. It's the first time we have bubbled in so many different areas – interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all a positive wealth effect, and on the way down it will retract, painfully.

Q: Are there any asset classes which are relatively attractive?

A: You could always own cash, or you could do what the institutions do, which is buy heavily into the asset classes that are least bad. The least overpriced are value stocks and emerging markets. Those are the two arbitrages. With value and emerging, you should make some positive return over the next 10 years.

Q: It is difficult to be bearish right now?

A: Not for me, because I don't have career risk anymore. But every big company has lots of risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they can, and make money on the downside.

But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on your face.

Bubbles, bubbles everywhere: Jeremy Grantham on the bust ahead
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (7)
Dividend Collector
Dividend Collector Jul 20, 2021 6:19AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I am investing in a lot of reits in Brazil. In Brazil reits are called fiis. These Brazilian fiis are paying from 15% to 30% in dividend, tax free and the payments are monthly. It is unbelievable how cheap and undervalue this market is, with PE ratio around 2
Studd Muffin
FlipTicks Jul 20, 2021 6:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Can anything really be a bubble when you print infinite amounts of money? Sure your buying something overpriced but 10 trillion printed later the valuation is right lol
jason xx
jason xx Jul 20, 2021 5:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
calm down the markets aren't even down 2%. Every "bubble" has always recovered and made a bigger bubble.
Francesco Lucchesi
Francesco Lucchesi Jul 20, 2021 4:10AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
but hey everyone is a winner. don't bet against America lol
jason xx
jason xx Jul 20, 2021 4:10AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That's the real problem. these institutions want our money but they don't want us personally investing.
Joel Schwartz
Joel Schwartz Jul 20, 2021 4:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Waif you mean EV and crypto mining stocks up 1,000% in a year are bubbles?!!??
james sizemore
james sizemore Jul 20, 2021 3:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I am concerned that the belief of so many is that it just keeps going up. Everyone seems to be a winner, and just like at a casino, they know there is something special about how they are playing the game. No perfect answers, but it does seem very plausible that a good sized downturn is coming.
james sizemore
james sizemore Jul 20, 2021 3:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I am concerned that the belief of so many is that it just keeps going up. Everyone seems to be a winner, and just like at a casino, they know there is something special about how they are playing the game. No perfect answers, but it does seem very plausible that a good sized downturn is coming.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email