The Man Who Called the 2008 Market Bubble Says This One Could Pop in Spring

[Hydrogen]

Jeremy Grantham, the long-term investment strategist of GMO and a renowned stock-market skeptic, says that the “epic” stock bubble of today could deflate as early as the late spring.

“My best guess as to the longest this bubble might survive is the late spring or early summer, coinciding with the broad rollout of the COVID vaccine,” Grantham wrote in a note to investors titled “Waiting for the Last Dance.” “At that moment, the most pressing issue facing the world economy will have been solved. Market participants will breathe a sigh of relief, look around, and immediately realize that the economy is still in poor shape, stimulus will shortly be cut back with the end of the COVID crisis, and valuations are absurd. ‘Buy the rumor, sell the news.’”

Last year, GMO, which Grantham founded, dramatically reduced its exposure to stocks, cutting net equity exposure in its Benchmark-Free Allocation Strategy to 25% from 55%. Today, target equity exposure for the strategy is 29%.

Grantham has been early to call other bear markets: GMO got out of Japan in 1987, two years before it peaked in 1989. For years, he has called the current market overvalued as it marched higher.

That has turned out to be premature. The S&P 500 closed up 16.3% for 2020, gaining just shy of 50% over the past two years, its largest two-year gain since 1999. The Dow Jones Industrial Average added 2068 points, or 7.3%, in 2020, while the Nasdaq Composite roared 43.6% higher last year. The small-cap Russell 2000 gained 18.4%.

Grantham is credited with predicting the 2000 and 2008 downturns and, more recently, has become known for speaking out about the perils of the changing climate and what it means for life on earth.

He argues that today’s bull market, born in 2009, “has finally matured into a fully-fledged epic bubble” that can be considered one of the great bubbles of financial history, akin to the South Sea bubble and those of 1929 and 2000. “These great bubbles are where fortunes are made and lost—and where investors truly prove their mettle,” he writes.

“The single most dependable feature of the late stages of the great bubbles of history has been really crazy investor behavior, especially on the part of individuals,” writes Grantham. Even though he owns a Tesla Model 3, Grantham’s personal favorite example of reckless behavior is the market value of Tesla (TSLA), which, at “now over $600 billion, amounts to over $1.25 million per car sold each year versus $9,000 per car for GM. What has 1929 got to equal that?”

Other examples of excess: The volume of small retail stock purchases; 248 special purpose acquisition company, or SPAC, listings; and the market’s vertiginous advance from its March lows. Meanwhile, the combination of a price/earnings ratio near the top of its historical range and an economy near the bottom “is completely without precedent, and may even be a better measure of speculative intensity than any SPAC,” Grantham writes.

https://www.barrons.com/articles/jeremy-grantham-says-stock-market-bubble-could-deflate-in-the-spring-51609932601

....


Doom and gloom prediction could pan out IMO. The vaccine won't work against the new mutant strain of corona which recently emerged in the UK and new york. Lockdowns will continue to have devastating effects on global job markets and economies. Inflation in the US may be relatively contained within the banking sector but that could change with new stimulus bills being drafted.

The fed is been responsible for the majority of uptrending US stock movement since 2008. But their control has limitations.

Lockdowns coupled with free money airdrops could represent the classic meme of the snake devouring its own tail. As an analogy for states attempting to tax and spend their way out of debt.

[jaysabi]

You should substantiate your claim that the vaccine won’t work against the new strains of the virus because it seems critical to your assessment that this guy I’ve never heard of is right about a collapse, and more importantly all evidence I’ve seen reported so far are that the current vaccines are effective against the new Uk strain of the virus.

[slapper]

Despite being so devasting, sooner or later, humans will find a cure for this virus. Dont be so pessimistic. Our economy is unquestionably destroyed and people are suffering huge pain, loss, and jobless. Though, there is light at the end of the tunnel. And I have seen it quite clearly. We are living in an international world where most parts interact with each other to create a colossal. In this market, this country helps that country, this company collab with that company and therefore, we can become even stronger to face new difficulties, new challenges.

While the Western cant escape from the virus, countries in the east have successfully contained the virus and recovered rapidly. The US (how ironic it is) might be lost in this fight, but don't worry, others will help you to overcome this destructive crisis


FYI, not all prediction is correct. Although His previous prediction was right, it is not necessarily to mean that his current will act the same. Don't be so hesitate to join the market and start earning money by investing or trading

[hatshepsut93]

With or without covid, a crash would come, the stock market looks like just as much of a bubble as crypto right now. Tesla doubled in a month = Bitcoin doubled in a month. I just read an /r/wallstreetbets thread today, and people were discussing how their normie friends who don't know what a bull market is are making thousands of dollars just by buying popular stocks.

I thin it's unclear how this crash would affect Bitcoin. We have seen Bitcoin and stocks going hand-in-hand in the past for some time, it could happen that stock market panic would touch all other markets, including crypto. And then money printer will go even more brrr to help companies, which would boost Bitcoin. This scenario has already happened with the initial covid market panic.

[rollingdice]

Lockdowns coupled with free money airdrops could represent the classic meme of the snake devouring its own tail. As an analogy for states attempting to tax and spend their way out of debt.

The governments don't think so. They consider these "money airdrops" as the only way to make people buy goods and recover the economy. They must be blind if they don't see that we invest or save the money instead.

[zanezane]

With or without covid, a crash would come, the stock market looks like just as much of a bubble as crypto right now. Tesla doubled in a month = Bitcoin doubled in a month. I just read an /r/wallstreetbets thread today, and people were discussing how their normie friends who don't know what a bull market is are making thousands of dollars just by buying popular stocks.

Do not take r/wallstreetbets articles seriously, that is a dumpster fire of pump and dump stocks, I beg to differ about stock being the same bubble as crypto, it is a more stronger bubble than crypto because there are government backers. What happened to the "normie" friends has been a long time concept by John Maynard Keynes called Keynesian Beauty Contest where the popular is the best bet instead of your personal choice, it just proves his concept that any stocks that is popular among the public is the one that will surely go up.

[TofuDefi]

Anything can happen of course. But enormous amount of new money were printed in 2020 and it drives markets to new ATHs.

[alexforneus]

Will stock market problems affect crypto industry? I think so, like it was in march 2020

[Tytanowy Janusz]

With or without covid, a crash would come, the stock market looks like just as much of a bubble as crypto right now. Tesla doubled in a month = Bitcoin doubled in a month. I just read an /r/wallstreetbets thread today, and people were discussing how their normie friends who don't know what a bull market is are making thousands of dollars just by buying popular stocks.

I thin it's unclear how this crash would affect Bitcoin. We have seen Bitcoin and stocks going hand-in-hand in the past for some time, it could happen that stock market panic would touch all other markets, including crypto. And then money printer will go even more brrr to help companies, which would boost Bitcoin. This scenario has already happened with the initial covid market panic.

Bitcoin doubled, tesla doubled ... but no one said anything about Venezuela stock market (IBVC) XD



From 2600 to 1 905 696 in 2 years (+73 000%). How that happened? Hyperinflation. I think that Jeremy Grantham is right and we will see massive dump (like 50%) but than we will see even stronger bounce and venezuela style pump, short rect (while Fiats will go to 0)

[Lucius]

The vaccine won't work against the new mutant strain of corona which recently emerged in the UK and new york.

I would not draw such a conclusion so abruptly, because according to some research the vaccines we have now can deal with certain mutations. Even if this is not the case, vaccines from Pfizer and Moderna use generic technology that allows the vaccine to adapt very quickly to each new mutation.

A new study provides early evidence that a Covid-19 vaccine might be effective against two new coronavirus strains first identified in South Africa and the UK, despite a concerning mutation. That's because of "the possibility that a future mutation ... might necessitate a vaccine strain change." Both Pfizer's and Moderna's vaccines use genetic technology that would allow the vaccines to be quickly adapted to account for mutations, they noted.

I personally do not see that the near future is so black, it is more gray with hints of light at the end of the tunnel. Although everyone smart knows that one should always prepare for the worst, and even if the stock market crashes and takes everything with it, it will not last forever. Do not put all the eggs in the same basket, do not listen to the so-called experts and think positively.

[The Sceptical Chymist]

Doom and gloom prediction could pan out IMO. The vaccine won't work against the new mutant strain of corona which recently emerged in the UK and new york.

The prediction certainly could turn out to be true, but I don't think coronavirus is going to be the ultimate reason.  This bull market in stocks has been going on since the banking crisis of 2008/09, and the laws of financial gravity don't allow for any asset class to just keep going up and up indefinitely.

On the other hand, popping bubbles are invariably precipitated by some sort of catalyst, but my guess is that there's going to be some kind of increase in inflation and/or interest rates that kicks it all off (and the effects of COVID-19 won't help matters, either). 

I wouldn't worry about new mutant strains and vaccine effectiveness, however.  Science will keep fighting the virus regardless of what it does, and unless it suddenly turns out to be far deadlier than it is, I'm not going to fret about it.

[ChrisPop]

I'm not sure about the vaccine not working against the new strains. I've just seen an article on The Guardian that says the Pfizer vaccine has been proven efficient on the UK and South African mutations. The testing took place on 20 subjects which is not very assuring in my opinion. With Trump making so much noise and creating instability, the stock market could indeed take a plunge. Personally, I haven't seen the United States in a so fragile condition.

[Princejebs]

I find it annoying why most people dont like the idea of this vaccine. If you don't like the vaccine, why don't you ignore rather than this continue of conspiracy theory and unnecessary market speculation.
If scientist makes vaccine in the past and lots of people didn't die and all survived, I don't see no reason why we would fail at this.
There weren't many access to smart phones and exposure that's why this never stop. I have this hope that Corrona will be something of the past very soon and every country will soon go back to their normal ways.

[Wexnident]

Well, it is for a fact imo that bubbles would certainly pop sooner or later. As for it being related to the rollout of the Covid vaccines, I hardly doubt it. Sides, even if a crash were to be seen, it would only be a natural result imo since in the first case, a bubble is supposed to pop and result in a crash, natural cause and effect I'd suppose.

Additionally, afaik, the vaccine was effective on the new strain of Covid though. But hey, it's still rather unknown what time would tell about the effects of the vaccine to the new strain. Only a limited number of tests were conducted from what I know, so there may actually be effects on the others.

[odolvlobo]

There are many people that called the bubbles in 2000 and 2008 (even I saw and avoided both bubbles). Anyway, do all the people that called the 2000 and 2008 bubbles agree with this man? If not, then how do you know that he has the correct prediction?

[Reid]

When I hear mutant, why is it X-Men which always pops out of my mind.
Too much fiction movies.

I doubt it won't work. There must be some tests that had been done before they put it in the market.
Also, people and investors will be buying and they don't want something without a quality check first especially for an expensive price.
This analyst could be using FUD for his self-profit later on.  

[raidarksword]

Many people called crypto a bubble at first because it's just new and it's been a long journey for us for crypto to reached its heights of success today. Bitcoin proved doubters wrong that crypto market getting strong as the start of this year wherein many good things happened already.

[kryptqnick]

I'm not surprised that he's saying the stock market bubble will explode. I was actually surprised that it did not happen in 2020, but many have predicted the global economic crisis falling to this year or close (even without and before the pandemic). They keep making the same mistakes, just like in 2008. And unfortunately, the highest losses will fall on the already disadvantaged people, whereas the rich ones will largely remain rich and will be bailed out with the help of taxpayers' money like it happened the last time...
Question is whether Bitcoin is actually a part of it. I think Bitcoin price is bound to explode at some point, but it might happen at a different time than the stock market.
As for the vaccine, for now it seems to cover the existing mutations AFAIK.

[exstasie]

Doom and gloom prediction could pan out IMO. The vaccine won't work against the new mutant strain of corona which recently emerged in the UK and new york. Lockdowns will continue to have devastating effects on global job markets and economies. Inflation in the US may be relatively contained within the banking sector but that could change with new stimulus bills being drafted.

Sure sounds like we're climbing the wall of worry to me!

Climbing the wall of worry is a reference to investor behavior during bull markets, at the end of major bear periods, or general periods of market gains.

The phrase refers to the market's ability to show resilience in the face of economic or corporate news that might otherwise spark a selloff, and instead keep pushing securities higher.

The wall of worry is sometimes one event the market must keep climbing in spite of but is more often a confluence of events the market must look beyond.

https://www.investopedia.com/terms/w/wallofworry.asp

Bears are coming out of the woodwork too early, as usual. I think they are underestimating the confidence Wall Street now has in the Fed's willingness to bail out the markets at all costs. March proved it. Nobody wants to fight the Fed. If necessary, corporate America will be kept afloat by endless bond market cash injections, and fiscal stimulus will soften the blow on Main Street.

The fed is been responsible for the majority of uptrending US stock movement since 2008. But their control has limitations.

I'm not sure it does.

[Pito001]

In this case crypto market will be dumped in spring too. We still connected to traditionl market