Jeremy Grantham says this may be the 4th major market bubble of his career

Published Wed, Jun 17 20203:14 PM EDTUpdated Wed, Jun 17 20203:42 PM EDT

Investor Jeremy Grantham is growing more and more sure that the U.S. stock market's rebound amid the coronavirus pandemic is forming a bubble that is ignoring reality and will end up hurting many people. "My confidence is rising quite rapidly that this is the fourth 'Real McCoys' bubble of my investment career," Grantham, co-founder of GMO, told CNBC's Wilfred Frost on Wednesday in an interview which aired on " Closing Bell ." "The great bubbles can go on for a long time and inflict a lot of pain." The previous three bubbles Grantham referred to were Japan in 1989, the tech bubble in 2000 and the housing crisis of 2008. Grantham pointed to the massive spike in speculative activity seen in the market lately as inexperienced traders and investors in platforms such as Robinhood buy and sell downbeat assets looking for a quick profit. "We've now reached a level where you buy bankrupt companies and you issue stock in bankrupt companies that will probably be used to pay off the bondholders," said Grantham, possibly referring to car-rental company Hertz. "This is crazy stuff." "Perhaps being cooped up indoors makes people frustrated, looking for outlets. I think that may have played some psychological role in the massive participation of individuals," he added. Hertz filed for bankruptcy on May 22 after its business was decimated by the coronavirus pandemic, sending its stock price down to 56 cents a share by the May 26 market close. Since then, however, the stock has skyrocketed more than 246%. Hertz is also one of the five most-popular stocks among Robinhood traders over the past month, with more than 120,000 accounts buying into it, according to third-party site Robintrack . Hertz later received approval from the bankruptcy court to sell up to $1 billion in stock as part of a last-ditch effort to raise capital. Hertz shares were halted for news pending on Wednesday after the SEC said it had issues with the company's planned stock sale . "This is 'The Real McCoys,'" said Grantham, referencing the TV show from the late 1950s and early 1960s. "In that kind of event, like 1929 or 2000, you want to see as much crazy participation by screaming leaders of wild investors as you can possibly see. That should make any bear feel better." He also said the Federal Reserve's efforts to stimulate the economy may be playing into the market's recent bubble-like behavior. "The Fed scattering money around has created a favorable environment, as it often does. So, with this amount of money slopping around, and with the economy depressed, it would be fairly traditional for some of the money to find its way into the market," he said, noting people are "ignoring of the downside problems" facing the world currently. Grantham's comments came after his firm told shareholders on June 4 it had taken its equity exposure down to 25% from over 50%. On Wednesday, Grantham said he would advise investors to take their U.S. exposure to zero, noting: "The U.S. is simply now playing with fire. You might make a lot of money in a really short time but recognize we are skating on very thin ice."

Renowned investment manager Jeremy Grantham poses on a balcony at his Rowes Wharf office in Boston.

Lane Turner | The Boston Globe via Getty Images

"My confidence is rising quite rapidly that this is the fourth 'Real McCoys' bubble of my investment career," Grantham, co-founder of GMO, told CNBC's Wilfred Frost on Wednesday in an interview which aired on "Closing Bell." "The great bubbles can go on for a long time and inflict a lot of pain."

The previous three bubbles Grantham referred to were Japan in 1989, the tech bubble in 2000 and the housing crisis of 2008.