Jeremy Grantham has warned that a “superbubble” in asset prices would likely end in a painful recession.
The veteran investor discussed housing affordability and income inequality in a recent interview.
Grantham also discussed Elon Musk, the Fed, his own net worth, and the stock meme mania of 2021.
Jeremy Grantham once again raised the alarm on a “superbubble” in the financial markets, and warned that its bursting would probably herald a harsh recession, during a recent episode from the podcast “The Great Simplification”.
The GMO co-founder and market historian discussed everything from his own net worth to Elon Musk, the need for Fed reform, housing affordability, income inequality and the craze for meme stocks in 2021.
Here are Grantham’s 9 best quotes, lightly edited for length and clarity:
1. He got into finance for fun
“I got into finance for a very profound reason, and it was because I asked which of my business school classmates were having the most fun? Back then, in 1968, way back, the stock market guys were having the most fun. fun. So I thought, “Well, I don’t want to miss this.” Not only were they having more fun, they were getting paid a lot more money. What’s not to like about that?”
2. Not really being a billionaire
“I’m just a billionaire by some weird, generous construct, and that’s if you count the money I’ve given away, which is a pretty fancy way to calculate someone’s net worth. But in terms of what I actually have and what I could spend, and buy back my daughter who was kidnapped tomorrow, I’m at least an order of magnitude short.”
3. On meme stocks in 2021
“In 2021, we’ve had some crazy behavior. I think if you look at the scale of it, it’s the largest and most significant crazy behavior in the recorded history of the U.S. stock market.” (Grantham was referring to the massive hype and speculation around meme stocks, SPACs, cryptocurrencies, NFTs and other risky assets.)
4. On the risk of a superbubble
“Superbubbles come back to trend like all normal bubbles, but they cause a lot more pain because they distort the system. When they inevitably burst, they are always a shock because everyone has locked themselves into the new paradigm. They eventually fall off trend, and all but one in history are below trend for a period of time, which creates a huge negative effect on income and has always caused a recession. (Grantham has repeatedly warned the S&P 500 could crash of more than 50%.)
5. The economy is in bad shape
“If you miscalculate, the recession turns into something truly terrible, like the depression of 1929, like the bitter recession of the Nifty 50 in the 1970s, or the near-total financial collapse of the housing crisis in 2008 . And we have to expect something… pretty bad this time. We’re waiting to see if it follows the pattern of history, or if it’s really this lovely creature, a new paradigm. But history is not kind to the thinking of the new paradigm.
6. Income inequality in the United States is severe
“Enlightened government will ensure that there is a fairly broad and acceptable distribution of income. We are already getting this wrong. Our income distribution in the United States no longer passes this test. This has resulted in an alienation, almost a bitterness. and the anger of at least a third of the general public who feel they have been badly treated. I think it could very well be demonstrated that, yes, they have been royally screwed since 1975 approximately.
7. There is good and bad capitalism
“People who start their own companies like Mr. Musk, in a sense, they deserve what they get. People who start a new company, when you’ve paid all the rent and all the salaries, what’s left is the yours. I understand that. That’s capitalism. That’s the best part of capitalism. When you put a bunch of your friends on the board and decide to give yourself $200 million in stock options buying shares over three years because they’re your friends, that “It’s not capitalism. It’s the stock option culture gone wrong.”
8. Everything is unaffordable
“Buying a house, it’s such a high indicator of unaffordability now. Peak prices as a multiple of family income times 7.8% mortgage, that’s a sharp increase in your cost. So cars, houses and real life, it’s not a super comfortable world for anyone below half the income scale.”
9. On the Fed
“I think the Fed has been given way too much responsibility. If they were just making sure there was a decent amount of money available…but they’re worried about inflation, growth,debt,unemployment.It’s pretty well guaranteed.he’ll settle for a simple policy of making rates cheap.The cheap rates were terrible for retirees, they didn’t get paid anything.
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