Jeremy Grantham’s warning that share prices are heading for a mighty fall is just part of the new year financial calendar, say his critics. On this occasion, however, the British co-founder of Boston-based fund manager GMO and highly regarded observer of stock market bubbles, may have got his timing spot-on.
Certainly “Let the Wild Rumpus Begin” was a terrific title for Grantham’s piece last week: a rumpus is roughly what we’re seeing, at least if one looks at the US, where the technology-heavy Nasdaq has lost 16% since the start of January. It was clobbered so severely on Monday that even the UK’s FTSE 100 index, a decidedly non-tech collection of stocks, was obliged to react to the apparent shift in investor sentiment. The Footsie lost 187 points, or 2.6%, even if a possible Russian invasion of Ukraine was also in the mix.
Grantham’s thesis is that US stocks are in a “superbubble”, an upgrade on last year’s diagnosis of “an epic bubble”, and that the US has seen only three other such extreme events in the past 100 years – the Wall Street crash of 1929, the turn-of-the-millennium dotcom mania and the housing market madness of 2006.
He ran through his checklist of a late-stage bubble, of which “the most important and hardest to define” is “the touchy-feely characteristic of crazy investor behaviour”. On that score, he has hard-to-dispute examples: the meme stock merriness of a year ago; dogecoin, a parody cryptocurrency, rising to a value of $90bn “because Elon Musk kept joking about it”; and shares in car hire firm Hertz soaring because the company said it would order some Teslas.
Those episodes are now over, reckons Grantham, and we’re on to “the vampire phase” of the bull market. Share prices have defied Covid, the end of
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