EDITOR NOTE: If you’re invested in the stock market, you may have only a few weeks left before you lose a good part of your unrealized gains, according to Jeremy Grantham. Bold. Very bold. You see, many financial experts will call a bubble, but very few will venture to time it in a public forum. Not Grantham. He’s calling a top in a matter of weeks, risking public humiliation should his prediction not pan out. Whether his timing is dead on or dreadfully off doesn’t really matter. His rationale is sound: “If you think you live in a world where output doesn’t matter and you can just create paper, sooner or later you’re going to do the impossible, and that is bring back inflation.” Who in the right mind would argue that “real output” or production has no economic merit in the face of monetary policy? So, whether the bubble bursts in a few weeks, months, or years--know that it will burst and take many naive investors by surprise (and a lot of their wealth with it). Don’t join the herd that follows the money off the FOMO cliff. Hedge your positions by diversifying now. Inflation will soon be upon us. And when it does arrive, hopefully, you’ll have allocated some of your money to non-CUSIP gold and silver. For those are the only reliable assets with intrinsic value that’ll save your money when the dollars finally go down the drain.
That is the latest from Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co., offering up a stark warning to speculators driving the stock market to new heights amid the greatest pandemic of the past century.
In an interview with Bloomberg TV’s “Front Row,” the storied investor, who is often credited with several prescient market calls over the past two decades, insists that a steady rise in stocks, fostered by free money from the Federal Reserve and the government’s fiscal stimulus, can’t continue without consequences.
“If you think you live in a world where output doesn’t matter and you can just create paper, sooner or later you’re going to do the impossible, and that is bring back inflation,” Grantham warned.
This is far from the first word of caution that Grantham has sounded in recent weeks but he’s now pointing to the $1.9 trillion coronavirus relief package proposed by newly inaugurated U.S. President Joe Biden as further reason for an eventual bursting of the bubble.
Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in 2000 and again in 2007, anticipating those market downturns, The Wall Street Journal reports. Grantham also signaled that elements of the financial market had become unmoored from reality leading up to the 2008-09 financial crisis.
Back in June, one of GMO’s key investment officers, Ben Inker, told investors that it was time to sell stocks, in a client letter, cited by Bloomberg. Inker suggested to Bloomberg that investing is no easy game.
U.S. equities, meanwhile, have defied Grantham’s bearish prognostications and gravity. The Nasdaq Composite Index COMP, +0.09%, the Dow Jones Industrial Average DJIA, -0.57% and the S&P 500 index are all trading near historical peaks.
Originally posted on MarketWatch