Jeremy Grantham Warns ‘Super Bubble’ in Stock Market Has Yet to Burst

Jeremy Grantham Warns ‘Super Bubble’ in Stock Market Has Yet to Burst
Jeremy Grantham, founder of GMO, explores different perspectives on resource volatility, security, and planning at the ReSource 2012 conference in Oxford, England, on July 12, 2012. (Matthew Lloyd/Getty Images for ReSource 2012)
Nicholas Dolinger

One of the co-founders of asset manager Grantham, Mayo, Van Otterloo & Co. (GMO) has made a dire warning to investors, predicting that the stock market is currently in the midst of an unsustainable bubble that may leave many investors caught with their pants down.

In an interview with Bloomberg, Jeremy Grantham, GMO’s chief investment strategist and co-founder, warned that, true to his reputation for bearish market bets, the worst is yet to come for the stock market,

“You had a typical bear market rally the other day and people were saying, ‘Oh, it’s a new bull market,” Grantham told Bloomberg. “That is nonsense.”

At the beginning of this year, Grantham predicted that benchmark stocks would likely fall by 50 percent. The investor believes that this process will occur in three stages. First is a partial setback, such as that seen in June, when those stocks had fallen by 25 percent from their January high. Next, there would be a slight rally, such as seen in the subsequent months. The third stage is a much deeper collapse of market fundamentals—an event which has yet to occur, but which Grantham sees on the horizon for the market.

“My bet is that we’re going to have a fairly tough time of it economically and financially before this is washed through the system,’’ Grantham said. “What I don’t know is: Does that get out of hand like it did in the 1930s, is it pretty well contained as it was in 2000, or is it somewhere in the middle?”

John Hazrati, an investment banker for Financial Technology Partners, views Grantham’s remarks as reflective of a particular philosophy of investing, which acknowledges major risks in the current market and remains vigilant against overly optimistic predictions.

“Grantham speaks to the very real habit of dip-buying instilled into investors, which has mostly worked for the past decade,” Hazrati told The Epoch Times. “Persistent ’transient' inflation, supply-chain issues, and electricity rationing in the developed world means some sort of recession is almost guaranteed.”

“The path of [maximal] pain for investors could be a series of bear market rallies and fake-outs while we grind lower over the next year or even longer. If that happens, I think many more investors will be more [expletive] than realize it now.”

Grantham has a strong reputation as one of the most bearish big-name investors in the market, and his predictions typically range as pessmistic about the future of the market. During his time at GMO, Grantham was known for his philosophy which emphasized “reversion to the mean,” which predicted that periods of outstanding economic growth would likely be followed by major market contractions.