Him alarm bells for a devastating real estate tsunami, a recession in the global economy and a stock crash by 2025, the legendary investor and co-founder of GMO has struck again Jeremy Grantham.
Grantham also self-criticizes his inadvertent investments in meme stocks, urges his panelists and audience to steer clear of real estate, while praising the auto industry Tesla and the Elon Musk because of their “fight against climate change”.
More specifically, at an event held at Livewire Markets in Sydney this week, Grantham said:
“I don’t think we’re in a new bull market…
There has never been a bull market in history that started at such high prices – let alone at the levels we are at now.
So the question is not whether we will go straight down, but how far down we will go” in the next 12 to 18 months.
The investor then referred to the 12 giant US stocks that have had a hellish run due to the artificial intelligence boom, “and that certainly gave the impression that the hard times are over.
The problem is that prices are incredibly high and basically the economy is starting to slow down.
In other words, stocks are artificially high…”.
“The US stock market, growth stocks above all, experienced a wild party as the frenzy gripped investors for meme stocks.
Incidentally, this led me to the biggest investment I ever made in a startup, QuantumScape.
She made her appearance as SPACwhich I hate… I think they should be illegal.
That company’s stock—forget earnings or sales—was selling… more than General Motors or Panasonic.
There was nothing on this scale in 1929 or 2000.
This was probably one of the biggest speculative events of all time.”
Real estate market…
According to Grantham, “I would be very careful with real estate.
Around the world, over the past 20 years, falling mortgage rates have driven real estate into really high multiples of household income – so high that young people can’t afford to buy a home.
So I wouldn’t touch real estate.”
Therefore, I am very worried about the economy.
I am very afraid that there will be a big financial problem”.
On the other hand, I like green stocks, whose companies fight climate change.
I believe they will show incredible revenue growth, led by Tesla and the electric car manufacturers in general, against the struggling VW and other old fashioned cars.
It would be a terrible mistake not to invest in the green transition.”
Green growth will dominate portfolios.
It doesn’t mean there won’t be financial problems, it doesn’t mean there won’t be bubbles.
But it will be the sector of the economy that drives growth more than anything else.
Mind you, every commodity holds… royal pain because it can have completely unpredictable and shocking drops along the way.”
As for the possibility of a recession, “The Fed and the economic establishment, the financial establishment, have always underestimated the possibility of a recession.
They always say everything will be fine.
This is not unusual, it is absolutely inevitable, and they will do it again.
We will have an extensive problem with the economy.”
The Federal Reserve’s most aggressive monetary tightening in 40 years could trigger an economic recession and send the stock market into Tartarus
“I think we have left behind the bubble of 2021, which was one of the biggest.
And this era should normally be a period of deflation.
Profits were supposed to be falling, margins were to be reduced and the economy was to slide into recession.
Every great bubble is followed by a recession. Personally, I think AI is important. But it is too late to save us from a recession.
The deflationary forces are much bigger than tech stocks.
The power of interest rates rising and depressing the real estate market is very negative.
And I suspect it will dominate again. And we will have a recession that dominates next year, which will have a negative impact on share prices,” Grantham said in his analysis.
According to the GMO founder, the recession may start as early as 2023 – contrary to the claims of the US Federal Reserve, which recently said that we have passed the recession hurdle. “The Fed’s track record on these things is great… They are guaranteed to be wrong.
They have never called recessions…recessions, and especially those that follow big bubbles. They pride themselves on creating bubbles, because they want to take credit for the beneficial effect of higher asset prices. They never claimed credit for the deflationary effect of the collapse in asset prices. And they always do.”
As for Fed Chairman Jerome Powell, Grantham points out: “I’m not a fan of him, nor am I happy about the way he’s handling situations.
I suspect inflation will never reach the 10 year average.
We have entered a period of moderately high inflation, and therefore moderately higher interest rates. And if you want my honest take, I think the economy and especially the stock market is very secondary in a list of major long-term problems that we have, and that nobody has taken seriously enough yet.
And I feel like when we sit here and talk about the stock market, we’re a little bit like the emperor Nero singing while Rome burns.
We are short of resources. We have shortages in human resources. A demographic problem we have never seen before, especially in countries like China.
We have an incredible increase in inequality, which I think is the poison in the political system. And we have a big wave of toxicity.
I think we have made the planet inhospitable to every form of being, homo sapiens included.
And these are the important issues. The developments are rapid. They threaten the existence of a stable global society.”