Jeremy Grantham says the end of 'bubble extravaganza' is coming, calls for stocks to drop 45%

Published Thu, Jan 20 20222:28 PM ESTUpdated Thu, Jan 20 20224:55 PM EST

Notable investor Jeremy Grantham has issued another dire call on U.S. markets, saying the burst of multiple-asset bubbles will cause the S & P 500 to tank 45%. "Today in the U.S. we are in the fourth 'superbubble' of the last hundred years," the co-founder of GMO said in a note published on Thursday . "The higher you go, the lower the expected future return; you can gorge on your cake now or enjoy it piece by piece into the distant future, but you can't do both." The famed investor has been warning of extreme speculative activities in the market since the depth of the pandemic. Grantham is a widely followed investor and market historian with a track record of identifying market bubbles. He foresaw the 2008 bear market and the dot-com bubble-bursting of 2000. He believes that after the historic rebound from the Covid-induced sell-off, the market is due for a big correction amid "crazy" investor behavior. He expects the S & P 500 to fall to a trend value of about 2,500, or some 45% below where the index was trading on Thursday, around 4,579. We are "approaching the end of the first U.S. bubble extravaganza: housing, equities, bonds and commodities," he said. The 83-year-old investor said the penultimate feature of bubbles is an acceleration in the rate of price increase to two or three times the average speed of the full bull market. That's evident in the Nasdaq Composite , a tech-focused index which rebounded more than 100% from the pandemic low, he pointed out. The sign right before the burst of the bubble has historically been "a sustained narrowing of the market and unique underperformance of speculative stocks," Grantham said, adding we are seeing that happen now. "In the last two and a half years there can surely be no doubt that we have seen crazy investor behavior in spades – more even than in 2000 – especially in meme stocks and in [electric vehicle]-related stocks, in cryptocurrencies, and in NFTs," Grantham said. In such an environment, investors should avoid U.S. equities and emphasize the value stocks of emerging markets and several cheaper developed countries, most notably Japan, Grantham said. "Speaking personally, I also like some cash for flexibility, some resources for inflation protection, as well as a little gold and silver," he added.

Jeremy Grantham, co-founder and Long-Term Investment Strategist of Grantham Mayo van Otterloo.

Source: The Years Project | SHOWTIME

Notable investor Jeremy Grantham has issued another dire call on U.S. markets, saying the burst of multiple-asset bubbles will cause the S&P 500 to tank 45%.