Jeremy Grantham is a co-founder of the Boston based asset manager, Grantham Mayo Van Otterloo and Co LLC. He has gained a reputation as a value based investor and a spotter of asset bubbles, although his detractors may call him a perma-bear.
He publishes his views on the markets regularly on the GMO website, similar to Howard Marks at Oaktree. His latest one on 31st August 2022 struck a decidedly gloomy tone. While critics may point out that he is usually very gloomy it is still worth a read because it lists out the problems the world economy is facing, will face soon, and will face in the future.
The TL;DR version:
- superbubbles are very important to investors, there exist similar patterns to be found in all of them
-bear market rallies are one such feature. They can recover over half of the initial losses, drawing in unwary investors. This happens before economic indicators start to deteriorate. When that happens, the market will come crashing down even worse than before. He clearly thinks we are currently in such a rally
-US market remains expensive, having already suffered hits from inflation, now faces food and energy inflation, record fiscal tightening and so on. The main body of his article contains a chilling list of risks facing the market
-the current superbubble includes an unprecedented over-valuation for many asset classes (stocks, bonds, housing etc) and the worse is yet to come, if history is any guide
According to him, there were 3 superbubbles in history, and we are currently in the 4th. All 4 bubbles contain a middle phase where a bear rally takes place:
The proof of the pudding is the speed and scale of these bear market rallies.
From the November low in 1929 to the April 1930 high, the market rallied 46% – a 55% recovery of the loss from the peak.
In 1973, the summer rally after the initial decline recovered 59% of the S&P 500's total loss from the high.
In 2000, the NASDAQ (which had been the main event of the tech bubble) recovered 60% of its initial losses in just 2 months.
In 2022, at the intraday peak on August 16th, the S&P had made back 58% of its losses since its June low. Thus we could say the current event, so far, is looking eerily similar to these other historic superbubbles.
He does admit that it is possible this time is different, but if not, we are in the 3rd Act of a play where the 4th and final Act usually ends in a tragedy. We could be entering that final Act.
The article can be found here
None of the above should be construed as investment advice. Do your own due diligence as I will not be responsible for any loss/risk.
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