Jeremy Grantham predicts the US 'superbubble' will pop, wiping out $35 trillion

[Hydrogen]

Legendary investor Jeremy Grantham said Thursday that the US is experiencing a "superbubble" in stocks, housing and commodities – and predicted that it would all soon come crashing down.

The founder of the GMO investment firm said in a new note that $35 trillion of wealth could easily be wiped out in the US alone in a long and drawn out process, slammed the Fed, and gave some investing advice.

Here are the 12 best quotes from his latest note.

The US is in a stocks, housing and commodities 'superbubble'

1. "Today in the US we are in the fourth superbubble of the last hundred years." – The others were in stocks in 1929 and 2000, and in housing in 2008, Grantham said.

2. "The equity bubble… has now been joined by a bubble in housing and an incipient bubble in commodities."

3. "In a bubble, no one wants to hear the bear case. It is the worst kind of party-pooping. For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime."

It may already be imploding

4. "The final feature of the great superbubbles has been a sustained narrowing of the market and unique underperformance of speculative stocks, many of which fall as the blue chip market rises. This occurred in 1929, in 2000, and it is occurring now." - The tech-heavy Nasdaq 100 has fallen 9% year-to-date.

5. "The most important and hardest to define quality of a late-stage bubble is in the touchy-feely characteristic of crazy investor behavior. But in the last two and a half years there can surely be no doubt that we have seen crazy investor behavior in spades… especially in meme stocks and in EV-related stocks, in cryptocurrencies, and in NFTs."

The crash could wipe out $35 trillion of value

6. "When pessimism returns to markets, we face the largest potential markdown of perceived wealth in US history." – Grantham said mixing three asset bubbles together is extraordinarily dangerous, and said the S&P 500 could drop 45%.

7. "If valuations across all of these asset classes return even two-thirds of the way back to historical norms, total wealth losses will be on the order of $35 trillion in the US alone."

Grantham savages the Federal Reserve

8. "All of the economic and financial dangers that are now building up from multiple major bubbles do not appear to be considered especially dangerous by the Fed or most of its equivalents around the world."

9. "With the clear dangers of an equity bubble revealed in 2000 to 2002, the even greater dangers of a housing bubble in 2006 to 2010, and the extra risk of doing two asset bubbles together in Japan in the late 1980s and in the US in 2007, what has the Fed learned? Absolutely nothing, or so it would appear."

And finally, some investing advice

10. "Avoid US equities and emphasize the value stocks of emerging markets and several cheaper developed countries, most notably Japan. Speaking personally, I also like some cash for flexibility, some resources for inflation protection, as well as a little gold and silver."

11. "Cryptocurrencies leave me increasingly feeling like the boy watching the naked emperor passing in procession. So many significant people and institutions are admiring his incredible coat, which is so technically complicated and superior that normal people simply can't comprehend it and must take it on trust. I would not."


https://markets.businessinsider.com/news/stocks/jeremy-grantham-gmo-stocks-housing-bubble-crash-warning-advice-crypto-2022-1

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This sounds a bit serious. But I'm certain we can fix it with a little elbow grease and cryptocurrencies structured around bubble mitigation risk.

On a more serious note, what can be done to address mega bubbles which encompass many trillions of dollars in assets.

Could there be positives upsides to this, in terms of trillions in US student loan debt being forgiven?

Can debt asset contagion in the united states be contained regionally, without leaking across borders and having severe impacts on china and the global economy. China relies heavily upon the USA to purchase its imports. Without US markets could they have other alternatives to sell their wares?

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[jackg]

I feel like I could've been on board with the cryptocurrency slander and the overvalued stocks because those two are what everyone jumps to but investing in Japan doesn't sound that much of a solid plan - their population remains to be sinking and they are one of the most developed countries in the world but they've also been reported to have had 5 recessions in the past 2 decades (I think the UK, US and Germany have each had 3).

Property markets seem very bubbly but if the weirdly balanced pin stays standing, the pressure on it will just keep building rather than it collapsing - which could be more likely.

Governments either have no idea how to deal with anything or just don't want to as they won't be reelected if they're the reason for a crash.

[coolcoinz]

I've been hearing people like Max Keiser talking about the end of days since the last financial crisis and IMO all these doom preachers are doing the same thing the pumpers are, just in their own way.
We need overly negative and overly cautious people, just as we need permabulls to build our own objective view.

He mentions housing again... People were talking about growing prices for years now and every year they were saying that it's not worth buying real estate because prices are peaking and about to burst and every year they kept going up and are going to go up because the construction materials are going up and people still have to live somewhere. It's like with growing oil prices, you still have to drive your kids to school, go to work. You can do some cuts (travels, buy more online), but most of us will still need a car even if they go up another 20%.

Some stocks can go down but it doesn't have to be a sign of a bubble popping. Like Netflix went down hard not because it's a bubble but because other companies are taking away its users. Amazon offers a much cheaper service than Netflix and there's Hulu, Disney and the rest. Tesla dropped because IMO it's overbought. A lot of its price is a bet that Musk will think of something brilliant again and that Starlink is going to be a global success (which I doubt because of its high monthly fees and Bezos already trying to do the same thing but better).

[mk4]

I mean, the US stock market has been on bull mode since forever, so I wouldn't be surprised if we have a massive correction that's bigger than what the stock markets had recently (though I wouldn't make a significant bet on it). But at the same time, these freakin doomer "market predictions" lmao. I very rarely take these people seriously.

[The Sceptical Chymist]

There's never been a good way to "manage" a bubble.  Governments have tried to do it before by raising interest rates and other means at their disposal, but bubbles by their nature just have to burn themselves out, i.e., pop.  That's because there's no way to make people realize that they're investing in things that are extremely overvalued; by the time a bubble has formed, people are in full retard mode and aren't thinking clearly.

The NFT market is a great example of how insane things have gotten, and it's unfortunate that those got lumped into the "crypto" category in this article.  True, NFTs are a form of crypto but they're a hideous malformed bastard child, the kind that gets locked in the cellar for life.  They should never have been born IMO.

Speaking of this article, if Jeremy Grantham is a legendary investor, I've sure as hell never heard of him before.  Does anyone else recognize his name from somewhere?

[so98nn]

Well it’s not China who relying on the USA, it’s actually USA who is relying on China to fulfill their needs.
China has cheap labour’s and mega production houses all over it and this is why they alone has power to feed the global supply chain.

I don’t usually take side and never talk positively about china (lolz) but when it comes to production then they are the leader.

USA is more or less silicone valley brain, but al the dirt work of producing to assembling is done by china at cheapest level possible.

So this truss is gonna be their forever.

[davis196]

This guy seems to be just like another "prophet of the Apocalypse".
We've seen many people like him before and 99% of their predictions end up being wrong.
Most of the things he says make sense,but they are kinda exaggerated.
The US stock market is overvalued and heavily pumped by the money printing machine,but I don't expect a giant bubble pop,wiping out 35 trillion USD from the markets,because the Federal Reserve will stop such bubble pop,by injecting trillions of dollars of liquidity on the markets.
This guy is completely wrong about Japan and his opinions about the cryptocurrency world are partially right and partially wrong.He's right about all the memecoins,NFTs,shitcoins crap,but he's wrong about cryptocurrencies being "so complicated that normal people can't comprehend them".

[Lucius]

Well it’s not China who relying on the USA, it’s actually USA who is relying on China to fulfill their needs.
China has cheap labour’s and mega production houses all over it and this is why they alone has power to feed the global supply chain.

Let's say that China and the US are very dependent on each other, because China really provides cheap labor where the average worker works 6 days a week 12 hours a day for some $350 to $400, which is perfect for companies like Apple that have factories there and produce something they sell very expensive all over the world. China also has the largest seaports in the world providing logistics that is unthinkable for any other part of the world.

Can debt asset contagion in the united states be contained regionally, without leaking across borders and having severe impacts on china and the global economy. China relies heavily upon the USA to purchase its imports. Without US markets could they have other alternatives to sell their wares?

I think that every crisis in the US must affect the overall world economy, which is somehow expected given how connected the world is - and China and the US are certainly connected if we look at the data from the last few years. However, the US has only 330 million people in terms of exports, the EU has just under 500 million, so I think China would somehow be able to compensate for the loss of the US market - although it is unrealistic to expect something like that.


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