Star investor Jeremy Grantham is known for his gloomy forecasts. Since the beginning of 2022, he has been predicting the bursting of a super bubble that will plunge the US economy and the stock market into the abyss. He also recently reiterated his prediction of a prolonged recession in the USA – despite the recent positive signals from the economy and increasing optimism among other experts.
• Jeremy Grantham still expects US recession
• AI hype not strong enough to prevent downturn
• Fed forecast as a contrarian indicator
In view of rising interest rates, star investor Jeremy Grantham has been warning of the bursting of a “super bubble” and a devastating crash on the stock market since the beginning of 2022. After it looked at times last year as if his prophecy would come true, the situation has now eased significantly again. Numerous experts have taken this as an opportunity to rethink their pessimistic forecasts. But not Grantham. He reiterated in a recent interview with “Bloomberg” that he continues to expect a recession in the USA, which may begin in 2023 and last well into next year.
Grantham: US recession inevitable due to tight interest rate policy
“At the end of the day, life is simple. Low interest rates drive up asset prices. Higher interest rates push asset prices down,” Grantham told Bloomberg. And due to the most aggressive monetary policy tightening in decades by the US Federal Reserve, we are now “in an era in which average interest rates will be higher than in the last ten years,” continued the co-founder of the investment company GMO. The inevitable consequence of this is a recession, which will also drag down the stock markets.
In addition, according to Grantham, a bubble formed after the end of the pandemic that was similar to the tech bubble from 2000 – the bursting of which the investor had predicted correctly, albeit too early. “I think we’re just coming out of the bubble of 2021, which was one of the big bubbles. And this should normally be the deflationary period,” said Grantham, who was confident that every big bubble is followed by a recession consequence. However, the bursting of the latest bubble was delayed by the AI hype that emerged at the turn of the year, which also caused strong price gains for the NASDAQ Composite and tech stocks such as NVIDIA. However, the new trend topic “artificial intelligence” probably cannot prevent a recession. “AI is very important. But perhaps it is too little, too late to save us from a recession. The deflationary forces created by the collapse of tech stocks in 2021 – [sind] probably too big. The Power of Rising Interest Rates Depressing the Real Estate Market – [sind ein] very negative, slow-acting influence. “I suspect they will dominate again and we will see a recession, perhaps lasting well into next year, and a concomitant decline in stock prices,” he said.
Incidentally, the investor does not see an end to increased interest rates and increased inflation in the next few years, and he even considers the Fed’s two percent target to be unattainable. “I suspect that inflation will never be as low as the average over the last ten years, [und] that we have again entered a phase of moderately higher inflation and therefore moderately higher interest rates,” said Grantham.
Grantham disagrees with Fed – recession will come
The fact that other experts no longer expect an impending US recession leaves the star investor cold. Grantham is not reassured by the fact that the US Federal Reserve, according to Bloomberg, is now saying that the risk of recession has been eliminated – quite the opposite. According to the investor, the Fed is “almost guaranteed to be wrong” with such forecasts. The Fed “never declared a recession, especially not the ones that followed the big bubbles. They prided themselves on stimulating the bubbles. They took advantage of the positive effects of higher asset prices on the economy. They were never to blame “claimed for the deflationary effect caused by the fall in asset prices” – and according to Grantham, that always happens in the end.
Star investor sees bigger problems than the stock market
But overall the world has bigger problems than the economy and the stock market. “The economy, and especially the stock market, is secondary in the list of important long-term problems that we have that no one is taking seriously enough,” the GMO co-founder told Bloomberg. Much more important issues include climate change, the scarcity of resources, the lack of workers and the “incredible increase in inequality”. But there are also bright spots here. Grantham described the efforts in the fight against climate change as “very impressive”.
In general, the star investor does not see himself as a pessimist, but as a realist who tries to see the world as it actually is and not as he would like it to be. “Sometimes I succeed and sometimes I fail,” Grantham said. How he fares in terms of his assessment of the state of the US economy will remain to be seen in the coming months.
Editorial team finanzen.net
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