- Jeremy Grantham has warned that a “super bubble” in asset prices is likely to end in a painful recession.
- The veteran investor spoke about housing affordability and income inequality in a recent interview.
- Grantham also touched on Elon Musk, the Federal Reserve, his net worth, and the meme stock mania of 2021.
Jeremy Grantham has once again sounded the alarm about a financial market “super bubble”, warning that its bursting would likely herald a severe recession. recent episodes of the podcast “The Great Simplification.”
The GMO co-founder and market historian touched on everything from his net worth to Elon Musk, the need for Fed reform, housing affordability, income inequality, and the 2021 meme stock boom.
Below are Grantham’s nine best quotes. Lightly edited for length and clarity.
1. He entered the financial industry as a hobby.
“I went into finance for a very deep reason: I asked my business school classmates which of them had the most fun. Back in 1968, by a wide margin, People in the stock market were having the most fun.” So I thought, “I don’t want to miss that.” Not only were they having more fun, they were also receiving far more money. What’s not to like about that?”
2. About not really being a billionaire
“I’m only a millionaire by a strange and generous construct. That’s if you count the money I’ve donated, which is a pretty strange way of calculating someone’s net worth. But if I actually In terms of what I have and what could potentially come out, and tomorrow I’ll buy my daughter back from her kidnapping, at least I’m an order of magnitude short of that.”
3. About meme stocks in 2021
“We did some absolutely crazy things in 2021. If you look at the scale of it, I think it was the biggest, most significant crazy thing in the history of the U.S. stock market,” Grantham said. (I was referring to the massive hype and speculation surrounding cryptocurrencies, NFTs, and other risk assets.)
4. About the risk of super bubbles
“Superbubbles return to trend just like normal bubbles, but they cause more pain because they distort the system. When they inevitably break, it is always a shock. Everyone is locked into a new paradigm. “They eventually break down.” When trending, all but one of them in history have been below trend for a while, which creates a huge negative income effect and always leads to a recession. has caused. ” (Grantham is warned repeatedly The S&P 500 could crash by more than 50%. )
5. The economy is worsening.
“If we miscalculate, the recession will be really bad, like the Great Depression of 1929, the severe recession of the Nifty 50 in the 1970s, or the almost complete financial collapse of the 2008 housing bust. “And one should expect something.” “This time it’s pretty bad. We’re waiting to see if this is following the pattern of history, or if it’s really that adorable creature, a new paradigm. But history is a new paradigm. It is not kind to the way of thinking.”
6. Income inequality in America is serious.
“A wise government would move to ensure a fairly broad and acceptable income distribution. We are already in violation of that. Income distribution in the United States no longer passes that test. As a result, marginalization , there’s almost a sense of bitterness,” “and the anger of at least a third of the general public who feel they’ve been treated badly. I think you can make a pretty good case that you’re being treated poorly.”
7. There is good capitalism and bad capitalism.
“People like Mr. Musk who start their own companies deserve what they deserve in a way. People who start new businesses, you know, once they’ve paid all their rent and salaries, what’s left is… That’s capitalism. That’s the best part about capitalism. You put a bunch of your guys on your board and they decide to give you $200 million in stock options over three years because they’re friends. That’s not capitalism. It’s that stock option culture is wrong.”
8. Everything is out of reach.
“Buying a home is now a very unaffordable index. The peak price of household income multiplied by 7.8% of the mortgage is a tremendous cost increase. And real life, it’s not very comfortable.” It’s the world for everyone who makes less than half their income. ”
9. About the Federal Reserve
“I think the Fed has been given too many responsibilities. If only the Fed was responsible for making sure they had the right amount of money… But the Fed is concerned about inflation, growth, debt, unemployment. “We do. It’s pretty much guaranteed.” “A simple policy of lower rates will solve the problem. Low rates are terrible for retirees, who don’t get paid anything.”