Grantham called the bubble peak

I like Jeremy Grantham’s latest article, which I linked in my Control Panel yesterday. It’s the third in a series so I decided to read the first two.

Grantham called the bubble peak on 1/5/2022 without realizing it.…

**Viewpoints | January 05, 2021**
**Waiting for the Last Dance**

**The Hazards of Asset Allocation in a Late-stage Major Bubble**

**By Jeremy Grantham**

**Executive Summary**

**The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.**
**<snip anaylsis of bubble>**
**What to Do?**

**As often happens at bubbly peaks like 1929, 2000, and the Nifty Fifty of 1972 (a second-tier bubble in the company of champions), today’s market features extreme disparities in value by asset class, sector, and company. Those at the very cheap end include traditional value stocks all over the world, relative to growth stocks. Value stocks have had their worst-ever relative decade ending December 2019, followed by the worst-ever year in 2020, with spreads between Growth and Value performance averaging between 20 and 30 percentage points for the single year! Similarly, Emerging Market equities are at 1 of their 3, more or less co-equal, relative lows against the U.S. of the last 50 years. Not surprisingly, we believe it is in the overlap of these two ideas, Value and Emerging, that your relative bets should go, along with the greatest avoidance of U.S. Growth stocks that your career and business risk will allow. Good luck!** [end quote]

As a professional asset manager, Grantham can’t advise people to go full defensive – to sell all stocks and go to cash, I-bonds & TIPS and short-term Treasuries.

By January 20, Grantham realized that the bubble was popping.…

**Viewpoints | January 20, 2022**
__Let The Wild Rumpus Begin*__

**(Approaching the End of) The First U.S. Bubble Extravaganza: Housing, Equities, Bonds, and Commodities**

**By Jeremy Grantham**

**Executive Summary**

**All 2-sigma equity bubbles in developed countries have broken back to trend. But before they did, a handful went on to become superbubbles of 3-sigma or greater: in the U.S. in 1929 and 2000 and in Japan in 1989. There were also superbubbles in housing in the U.S. in 2006 and Japan in 1989. All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average.**

**Today in the U.S. we are in the fourth superbubble of the last hundred years.**

**Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. In each case, these shared characteristics have already occurred in this cycle. The checklist for a superbubble running through its phases is now complete and the wild rumpus can begin at any time....**

**Speaking personally, I also like some cash for flexibility, some resources for inflation protection, as well as a little gold and silver. ...** [end quote]

Grantham seems to be enjoying the mixture of fear and excitement that I have felt when a major hurricane was approaching. With his decades of experience, Grantham warns that the bursting of today’s superbubble will lead to widespread, long-lasting problems.

Notice that, “speaking personally,” Grantham gives different advice than he does professionally. In fact, it sounds a lot like my advice.



I’d highly recommend anyone interested in Grantham look at his complete library of research here:

His critics reflexively dismiss him for having routinely made cautionary calls throughout much of his career. While there’s some validity in that criticism, his thinking does subtly evolve over time.

What’s most interesting is that Grantham appears to have dispensed with his view from the late 2010s that it could take 20 years or more to deflate the superbubble. Now, he seems to look for an “epic finale.”

good luck,

1 Like