21.01.2022 – Fasten your seat belts: If stock market guru Jeremy Grantham is right, Wall Street is in for a nasty crash. The interesting thing is that the perma-bear has often correctly predicted a crash. We don’t want to deprive you of his new word message with the title “Let The Wild Rumpus Begin” – see in German in the title of this analysis.
Super Bubble
Grantham is the co-founder of GMO, an investment manager in Boston. He just wrote that U.S. stocks are in a “Super Bubble,” the fourth of its kind after 1929, 2000 and 2008, and now the S&P 500 will dive to 2500 points. The Nasdaq Composite will drop even more, he said. “I wasn’t quite as certain about this bubble a year ago as I had been about the tech bubble of 2000, or as I had been in Japan, or as I had been in the housing bubble of 2007,” Grantham added in an interview with Bloomberg. “I felt highly likely, but perhaps not nearly certain. Today, I feel it is just about nearly certain.”
Checklist of insanity
The evidence is overwhelming, the investor wrote in his new analysis: the first warning sign was the crash of speculative stocks last February. One example, he said, was the Ark Innovation index fund of well-known investor Cathy Woods, which halved in value. Further, the Russell 2000 mid-size index has lagged the S&P 500, normally outperforming in a bull market, he said. Grantham went on to point to “crazy investor behavior” typical of the late stages of a bubble: meme stocks, buying frenzy in e-car stocks, the rise of meaningless cryptocurrencies like Dog-E-Coin, and million-dollar prices for non-fungible tokens, or virtual works of art.
Literally, the 83-year-old Grantham wrote, “This checklist for a super bubble running through its phases is now complete and the wild rumpus can begin at any time.” He continued, “When pessimism returns to markets, we face the largest potential markdown of perceived wealth in U.S. history.”
Helpless Fed
Grantham explained the fact that stock prices rose spectacularly last year by the strength of a few blue chips. The veteran primarily blames central bank policy over the past 25 years. Now the Fed can no longer intervene because of rising inflation, he said. Not only stocks are in a super bubble, but also bonds and the global real estate market, as well as commodities.
The antidotes
Grantham recommended selling U.S. stocks and getting into cheaper stocks in Japan and emerging markets. Further, gold and silver and cash to get back in after the correction. Our conclusion: Of course, it is easy for the bulls to ignore Grantham. Because he sent alarmist warnings into the world already at the beginning of 2021. For example, this one: “Bursting Of This “Great, Epic Bubble” Will Be The “Most Important Investing Event Of Your Lives,” Followed By “Spectacular” Crash In “The Next Few Months.” And in the end, prophets of doom are rarely right.
Now, however, things have changed. After all, the Federal Reserve is just pulling the rug out from under the stock market with its tapering. Maybe, maybe a protective put isn’t so wrong. The Bernstein Bank wishes successful trades and investments!
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