- Legendary investor Jeremy Grantham told CNBC on Thursday he’s more convinced than ever of a bubble in the stock market.
- “The more spectacular the rise and the longer it goes, the more certainty one can have that you’re in the ‘Real McCoy’ bubble,” the cofounder and chief investment strategist of asset management firm GMO said.
- The investor who is notable for calling major market bubbles first expressed his concern about the stock market’s bubble back in June.
- Grantham said the bubble is disconnected from economic realities, and neither a vaccine or fiscal stimulus will change its trajectory.
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Legendary investor Jeremy Grantham told CNBC on Thursday he’s certain the stock market is in a bubble following its “powerful, rapid, and, in many areas, truly crazy” rally from March lows.
“The more spectacular the rise and the longer it goes, the more certainty one can have that you’re in the ‘Real McCoy’ bubble,” the cofounder and chief investment strategist of asset management firm GMO said.
Grantham initially expressed his bubble fears to CNBC in June, when he told investors to have zero exposure to US equities and said he may be witnessing the fourth major market bubble in his career. The S&P 500 has gained roughly 14% since his call, and Grantham said this and “crazy behavior” from investors is only furthering his certainty that the US is in a bubble.
“You want to see not just the market rise, but if anything, an acceleration. And the rate of market rise, since the turn in March/April, has been nothing sort of sensational,” said the investor.
Grantham also said that the stock market has its own “psychological node” and behaves independently from economic realities.
“The market can go up on bad news and go up on good news,” Grantham said. “It can interpret a Trump victory as bullish and then seamlessly interpret a Biden victory as bullish. There are all the characteristics of a bubble. There’s nothing much you can throw at when it gets going.”
A successful vaccine or a second fiscal stimulus in the US won’t change the fact that the stock market is in a bubble, he added.
Grantham's successfully called three market bubbles in the past: Japan's asset-price bubble in 1989, the dot-com bubble in 2000, and the housing crisis in 2008.
On Thursday, he said 12 months would be a "stretch" for the bubble to continue inflating, while 24 more months of rising prices would be "extremely unlikely."
"I've never had any allusions about my ability to time the bubble breaking, I have a very low definition of success," said Grantham. "It's just sooner or later, the market will be lower than the point at which I suggested you should get out."
He added that low risk-free rates from the Federal Reserve have pushed up the prices of assets.
"The one reality you can never change is that a higher-priced asset will always produce a lower return than a lower-priced asset. You can't have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both. And the price we will pay for having this market go higher and higher is a lower and lower 10-year return from the peak," the investor said.
