Historian Who Predicted Housing Bubble Issues Urgent Warning About the Stock Market
(ANTIMEDIA) — A man with a reputation for staying ahead of the stock market curve issued a warning to investors on Wednesday. In a 13-page note, investment strategist Jeremy Grantham made his case that all signs point to a looming market “melt-up” that will set the stage for an inevitable crash.
“I recognize on one hand that this is one of the highest-priced markets in US history,” the 79-year-old Grantham writes. “On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.”
Grantham is co-founder of Grantham, Mayo, & van Otterloo (GMO), a Boston-based asset management firm. As a strategist, he is credited with predicting the market downturns of both 2000 and 2008.
In analyzing the market, Grantham says price alone is “by no means a sufficient sign of an impending bubble break,” and that of all factors, “indicators of extremes of euphoria seem much more important than price.”
This “euphoria” leads to price acceleration, Grantham explains, which in turn leads to a concentration of investment in the best-performing stocks. A look at all this data, he says, reflects “the importance of a true psychological event of momentum increasing to a frenzy.”
In the note, Grantham compares today’s market numbers to the days leading up to other bubble bursts, including the crash of 1929. Of the market as a whole, Grantham makes the following assessment:
“Until very recently it could justifiably be described as clawing its way steadily higher. But just recently, say the last six months, we have been showing a modest acceleration, the base camp, perhaps, for a final possible assault on the peak.”
As for the current potential for a market crash, Grantham says the “fundamentals are improving.” One item he cites as evidence is Trump’s lowering of the corporate tax rate, the gains of which Grantham says are “unlikely to be quickly competed away as theory suggests, but very likely to further fatten the corporate share of the GDP pie and perhaps provide the oomph to keep stock prices rising.”
Grantham is warning investors that this final “melt-up” phase of the market bubble could come in as soon as six months.
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