 |
| Investment Strategist Jeremy Grantham Warns of Impending Burst of 'Super Bubbles' |
Market strategist Jeremy Grantham, co-founder of GMO, has issued a warning about “super bubbles” that could burst and lead to painful effects. In a recent interview with economist David Rosenberg, Grantham criticized the Federal Reserve for causing repeated asset bubbles, creating an environment that is conducive to a series of super bubbles breaking. He likened the current situation to the one in 2000, highlighting that the economy had a gentle recession back then without any real estate or debt markdown issues. However, the current bubble is different because it’s an “everything bubble.”
Grantham explained that we have bubbled the important and dangerous housing market to record prices, and we have bubbled the bond market to levels that have never been seen before in the history of man. Every super bubble is followed by a recession, and if anything is really wrong, like 1929, it is followed by a depression. If the financial system is messed around with, the terrible happenings of the Great Financial Crash can occur. Grantham warned that the bear market is unlikely to end until deep into next year, and the fundamentals could drag out for quite a while.
Grantham’s warnings come as the US stock market has been on a tear since the depths of the pandemic, fueled by fiscal stimulus and a historically accommodative Fed. However, Grantham is not alone in his pessimism. Other Wall Street veterans have issued similar warnings, noting that stock prices are high relative to underlying corporate earnings. Grantham warned that after April, we will probably begin to see pressure on profit margins, GDP growth, and the labor market. He concluded by saying that the Fed has not got anything right since Paul Volcker and has created an environment conducive to a chain-linked series of super bubbles that break with outrageously consequential, painful effects.
Investors are likely to remain cautious amid warnings of potential bubbles and their consequences. While it’s difficult to predict exactly when a bubble will burst, it’s important to take note of the warnings issued by seasoned market strategists and to be prepared for a possible correction or recession.
