The esteemed investor Jeremy Grantham has come forward and doubled down on his prediction of another market bubble collapse in our near future. Grantham first mentioned the potential of a market burst last February but was unsure. Recent events have changed his opinion on the market collapse from “highly likely” in February of 2021 to “nearly certain” in a recent Bloomberg report from 2022. He predicts a staggering drop in the value of market indexes like the S&P 500 of nearly 50%.
Grantham has described the current financial market as the fourth ever “super bubble” in the United States. He believes that the collapse will be on par with other financial disasters like the dot com tech bubble in 2000, the 2008 real estate crash, and even the great depression of 1929. While many may hope to avoid this prophesized crash, Grantham believes that it has already begun.
The cause of this massive financial bubble is not only from erratic investor behavior in the stock market, but also stems from bubbles within bonds, commodity prices, and real estate. The combination of these inaccurate market valuations has combined into a perfect storm for a financial collapse. Grantham believes that assets in general have been highly overvalued and are due for a massive market correction. He went so far as to refer to the current state of the market as “the most dangerous breadth of asset overpricing in financial history.”
When you look at Grantham’s proposed evidence, his prediction is hard to deny. So called “meme stocks” like AMC, GameStop, and cryptocurrencies like Dogecoin have seen massive inflation in their market values despite offering no tangible reasons for the rise. More recently, the emerging NFT market has surged, with investors spending billions on digital artwork possessing little to no real-world application. The attempts of investors to “pump” these otherwise low value investments have caused an abnormal spike in their perceived value, but Grantham believes that the fairytale is soon to come to an end.
Grantham believes that the bulk of the blame for this bubble and the preceding bubbles of the early 2000’s falls on the shoulders of bad monetary policy. The repeated bail outs by the Fed have impeded natural market corrections from occurring after financial bubbles. Despite their past success, Grantham believes that the current high rate of inflation will hamper the Fed’s ability to avoid the coming collapse through stimulating the economy. “They will try, they will have some effect,” stated Grantham. “There is some element of the put left. It is just heavily compromised.”
With the impending cut in value of such a wide array of American markets, Grantham has proposed that investors sell off their U.S. equities. He suggests looking to hold more stable investments like gold and silver, as well as, accumulating cash to jump back into the market once prices become more stable. For those looking for alternative stock options, he pointed toward Japan and emerging markets with more reasonably priced options as safer alternatives to the U.S. market.