Grantham is known for his seemingly prophetic predictions of what befell Japan in 1989, followed by the tech bubble in 2000, and the US housing crash in 2008. He likened investing in US stocks in the current climate akin to “playing with fire,” and advised young traders to get out and sell while they still could. When asked what level of exposure investors should have to US equities, the bearish investor was blunt. His answer? Zero.
Grantham has been vocal in his criticism of various governments’ handling of past crises, like the 2007-2009 financial crisis, and now is no different. This time around, the Fed has falsely inflated the value of equities by injecting significant flows of money into the pockets of American consumers. But policies such as the $1200 stimulus checks and monthly unemployment benefits cannot and will not last.
Now, the rate at which the economy is crumbling is unlike anything Grantham and other experts have seen before. This reality, paired with the fact that there were already countless economic problems compounding before the health crisis and subsequent lockdown unleashed the worst of their effects, make for a perfect storm. Grantham, over the course of many years watching the stock market, said that this could very well be the fourth and most destructive bubble he has seen in his career.
In this video, we are going to discuss the data behind Grantham’s doomsday outlook, and if we really should be as worried as the stock market expert warns.
A pair of Harvard professors who wrote one of the leading analyses of the 2008 bubble agreed that what we are currently facing is indeed a completely different event, almost incomparable to past examples. They estimated that it will take at least 5 years to get back to levels of activity seen last year, in 2019.
If, by some miracle, a vaccine was available on a large scale by the end of this year, that may signal some chance that the economy could recover at a faster pace. However, such an occurrence is highly unlikely, as most vaccines develop on a much slower timeline or only achieve partial success in truly eradicating a pandemic.
While many experts have dismissed the possibility of runaway inflation, Grantham warned that the help provided by central banks throughout the pandemic and the more than generous stimulus packages have now made inflation a serious risk.
Other big names agree with Grantham’s dire predictions. Chamath Palihapitiya, chairman of Virgin Galactic, CEO of Social Capital, and minority stakeholder and board member of the Golden State Warriors, also called the current markets a bubble. He blamed the Fed for their mishandling of the situation, as the flooding of markets with extra cash can only last so long.
Scott Minerd, global chief investment officer at global investment firm Guggenheim Partners, predicted that the Fed may soon have to begin buying US stocks itself in an effort to avoid a serious economic depression. While this is not technically legal, there are plenty of workarounds the Fed could employ.
David Tepper, an American billionaire businessman, hedge fund manager, and philanthropist, agreed with Grantha, saying that current markets were the most overvalued he had seen since the dot-com bubble of the late 1990s.
A recent survey found that a whopping 61 percent of high-net-worth investors plan to wait for another dip in the market before buying stocks again. On the other hand, amateurs are throwing money into stocks at a record pace, particularly through apps like Robin Hood.
More people should be listening to the experts, or amateur investors will find themselves out a lot of money at a time where the average American just can’t afford to be losing. According to a survey released by Bank of America, 53 percent of global fund managers said this is in fact a “bear market rally,” not the beginning of a new bull market. Moreover, 78 percent of respondents said the stock market is currently being overvalued. Since the survey began asking the question in 1998, this is the highest percentage of respondents who answered so negatively. Clearly, Grantham is on to something, and a stock market crash is on its way.
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