The Bubble Expert

07 Jan

The Bubble Expert

Calling Jeremy Grantham an expert on stock market bubbles is justified by the evidence.  

Wikipedia describes Grantham, whose firm has some $64 billion under management, this way:

[Grantham] is a British investor and co-founder and chief investment strategist of Grantham, Mayo, & van Otterloo (GMO), a Boston-based asset management firm. Grantham is regarded as a highly knowledgeable investor in various stock, bond, and commodity markets, and is particularly noted for his prediction of various bubbles. He has been a vocal critic of various governmental responses to the Global Financial Crisis from 2007 to 2010. Grantham started one of the world’s first index funds in the early 1970s….

Grantham has built much of his investing reputation over his long career by claiming to identify speculative market “bubbles” as they were unfolding. Grantham claims to have mostly avoided investing in Japanese equities and real estate in the late eighties, as well as technology stocks during the Internet bubble in the late nineties.

Jeremy Grantham

For our friends and clients with exposure to the stock market during this period driven by unprecedented money-printing and deficit-financed government spending, we offer a few key observations from Grantham’s January 5 client letter “WAITING FOR THE LAST DANCE”:

“The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.

“These great bubbles are where fortunes are made and lost… every fault of individual human psychology will work toward sucking investors in.

“But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives….

“The single most dependable feature of the late stages of the great bubbles of history has been really crazy investor behavior, especially on the part of individuals. For the first 10 years of this bull market, which is the longest in history, we lacked such wild speculation. But now we have it. In record amounts…. As a Model 3 owner, my personal favorite Tesla tidbit is that its market cap, now over $600 billion, amounts to over $1.25 million per car sold each year versus $9,000 per car for GM. What has 1929 got to equal that? Any of these tidbits could perhaps be dismissed as isolated cases (trust me: they are not), but big-picture metrics look even worse.”

Grantham’s observation that “this bubble will burst in due time, no matter how hard the Fed tries to support it” reminds us of the old market aphorism that “nobody is bigger than the market.”  That includes the Fed, as the popping of its bubbles again and again attest.  

It there was ever a time to realize gains in the stock market and move them to the safety of gold and silver, now, with the government in complete disarray, with the American people divided in a way not seen in a century, and with monetary and fiscal policy stretched beyond belief, is such a time.

Speak with a Republic Monetary Exchange gold and silver professional today and learn how to protect your wealth, your retirement, and your family with precious metals.