• Jeremy Grantham earlier this year warned of a fourth “super bubble” in a hundred years
• Markets recently experienced “typical bear market rally”
• GMO co-founder sees “dangerous mix” – further problems are likely to hit the markets
Jeremy Grantham, co-founder of the Boston-based wealth manager Grantham, Mayo & van Otterloo (GMO), is considered an investor legend with more than 50 years of experience and has already successfully predicted numerous crises. He warned of bubbles in Japan in the late 1980s, a bubble in tech stocks at the turn of the century, and a bubble in the US housing market before the 2008 financial crisis.
Grantham warns of ‘super bubble’
Earlier this year, Grantham warned of a new super bubble forming. “This time last year it looked like we might have a normal bubble, with the usual consequences for the economy. But over the course of the year, the bubble has moved up into the super-bubble category,” Grantham wrote in a post on the Website of his investment company GMO. According to Grantham, a super bubble is defined as a combination of several individual bubbles, each of which is worrying on its own.
Recent recovery was just a bear market rally – bubble not yet bursting
The market whiz predicted benchmark stocks would plummet nearly 50 percent in a historic collapse. In June, the S&P 500 was at times almost 25 percent below its January high. In the weeks that followed, the market-wide index rose sharply again. However, US stock markets have been on the decline of late, with prominent strategists such as Morgan Stanley’s Mike Wilson warning investors that the market has not yet bottomed out, according to Bloomberg.
Jeremy Grantham agrees that the big bubble he warned about has not yet burst and that the interim rebound in US stocks from mid-June to mid-August was just a bear market rally – after an initial sharp decline and before the economy really starts to deteriorate – is common. “They had a typical bear market rally the other day and people were like, ‘Oh, this is another bull market,'” Grantham said in an interview. “This is nonsense.”
Grantham sees more problems coming to the markets
As Bloomberg reports, according to Grantham, the collapse of a super-bubble occurs in several phases: first there is a setback, as in the first half of 2022, then there is a slight rally, as was the case recently, and finally the fundamentals collapse and the market bottoms out, which he believes the market could now be imminent.
According to Bloomberg, Grantham currently sees further problems on the markets due to a “dangerous mix” of overvalued stocks, bonds and residential real estate, a commodity shock and the restrictive stance of the US Federal Reserve. The GMO co-founder also pointed to short-term issues, such as the impact of the Russian invasion of Ukraine on Europe, resulting food and energy crises, and China’s ongoing coronavirus woes. While rising inflation led to declines in the first half of the year, Grantham said declining corporate profit margins would cause the next round of losses. “I bet we’re going to have a pretty tough time economically and financially before this gets flushed through the system,” Bloomberg quoted the investor as saying. “What I don’t know is: Is this ramping up like it was in the ’30s, is it pretty well contained like it was in 2000, or is it somewhere in the middle?”
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