The United States is in the fourth ‘superbubble’ in the past hundred years, according to high profile investor Jeremy Grantham, who has warned that the blue-chip S&P 500 could lose almost half its value when it finally bursts .
Grantham, the Boston-based co-founder of GMO, argued in a letter to investors on Thursday that the sharp rise in stock prices since the recent nadir in early 2020 would abruptly reverse. He said the current situation was similar to the US stock crash of 1929, the dot-com bubble and the financial crisis of 2008.
He expects the S&P 500 to fall to 2,500, which is about a 45% decline from current levels.
Grantham, who has taken a consistently negative view of US equities, says a key feature of these seismic events is the speed at which stock prices have surged. The S&P 500 has more than doubled from the weak hit in the depths of the coronavirus crisis in March 2020.
He pointed to “crazy investor behavior”, including the rise of so-called meme stocks, such as GameStop and AMC, the cryptocurrency craze as well as the proliferation of non-fungible tokens ( NFT), as the markets display a bubble mentality.
“This checklist for a superbubble going through its phases is now complete and the wild heckling can begin at any time,” Grantham said.
“What’s new this time, and only comparable to Japan in the 1980s, is the extraordinary danger of adding multiple bubbles together,” he said, noting that the stock bubble has been accompanied by housing bubbles (in several global markets, including the United States). ) and raw materials.
If the valuations of all these asset classes return even two-thirds of the way to historical norms, total wealth losses will be on the order of $35 billion in the United States alone.
“When pessimism returns to markets, we face the biggest potential drop in perceived wealth in U.S. history,” Grantham said.